The dollar has begun to pare its early gains against its major rivals Wednesday afternoon, following the release of the Beige Book report. The Beige Book, coupled with hawkish comments from Federal Reserve Chair Janet Yellen earlier in the day, suggests that the central bank appears to be on track to raise interest rates at its December 15-16 meeting.
The U.S. consumer remains in an upbeat mood heading into the holidays, according to the Federal Reserve’s Beige Book. That’s good news for the broader economy that has suffered slowdowns during the previous two winters.
Respondents to the Fed’s Beige Book survey indicated that economic activity increased at a modest pace in most regions of the country since the previous report.
Fed Chair Janet Yellen stopped short of explicitly saying the Fed will hike rates this month, but acknowledged that conditions for tightening are on the verge of being met in a speech to the Economic Club in Washington.
“I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market,” Yellen said.
“Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2% as the disinflationary effects of declines in energy and import prices wane,” she added.
Economic data also came in better than expected this morning, further strengthening the Fed’s case for an interest rate hike. Investors are eagerly anticipating the release of the U.S. employment report for November at the end of the week.
Reflecting strong job growth in the service sector, payroll processor ADP released a report on Wednesday showing that employment in the U.S private sector increased by more than expected in November.
ADP said private sector employment jumped by 217,000 jobs in November after climbing by an upwardly revised 196,000 jobs in October. Economists had expected an increase of about 190,000 jobs compared to the addition of 182,000 jobs originally reported for the previous month.
Labor productivity in the U.S. increased by more than initially estimated in the third quarter, the Labor Department revealed in a report on Wednesday. The report said third quarter labor productivity jumped by an upwardly revised 2.2 percent compared to the previously reported 1.6 percent growth. The upward revision matched economist estimates.
The report said the increase in unit labor costs in the third quarter was also upwardly revised to 1.8 percent from 1.4 percent. The upward revision came as a surprise to economists, who had expected the pace of cost growth to be downwardly revised to 1.1 percent.
Meanwhile, the European Central Bank is expected to announce further stimulus measures when it concludes its policy meeting on Thursday.
The dollar climbed to a high of $1.0550 against the Euro Wednesday, but has since pulled back to around $1.0625, nearly unchanged for the session.
Eurozone inflation held steady in November, while core inflation weakened unexpectedly, strengthening the case for additional stimulus from the European Central Bank as early as Thursday. Inflation came in at 0.1 percent, the same rate as seen in October, flash data from Eurostat showed Wednesday. This was the second consecutive rise in consumer prices.
Economists had forecast inflation to rise to 0.3 percent. Headline inflation has been below the ECB’s target of ‘below, but close to 2 percent’ since early 2013.
Eurozone producer prices continued its downward trend in October largely due to falling energy prices, Eurostat reported Wednesday. Producer prices decreased at a pace of 3.1 percent in October from last year, but slower than the 3.2 percent decline posted in September. Prices were expected to fall again by 3.2 percent.
The buck broke out to a 6-month high of $1.4893 against the pound sterling Wednesday, but has since eased back to around $1.4945.
U.K. construction activity expanded at the slowest pace in seven months in November, survey data from Markit showed Wednesday. The Markit/Chartered Institute of Procurement & Supply Purchasing Managers’ Index for construction fell to 55.3 in November from 58.8 in October. It was forecast to fall to 58.6.
U.K. shop prices decreased for the thirty-first consecutive month in November to mark a joint record low, survey data from the British Retail Consortium and Nielsen showed Wednesday. Shop prices dropped 2.1 percent year-over-year in November, which was worse than the 1.8 percent decrease in October. The fall equaled a record decline in March.
The greenback reached a 2-week high of Y123.669 against the Japanese Yen Wednesday, but has since retreated to around Y123.135.
The monetary base in Japan spiked 32.5 percent on year in November, the Bank of Japan said on Wednesday, standing at 343.721 trillion yen. That follows the 32.5 percent spike in October.
The material has been provided by InstaForex Company – www.instaforex.com