A recent string of data shows that the United States economy is quickly recovering from what will likely be described as an insignificant quarterly contraction. A slack in the labor market is continuing to be absorbed. Average hourly earnings, employer costs for compensations, and employee cost indices describe that upwards pressure on labor costs is being experienced.
This trend is also paired with increases in consumer consumption. Americans spent a lot of time shopping in October and November, but stayed at home December through February. Retail sales fell 0.7 percent during these months, though the decline is also attributed to prices. However, in March sales rose by 1.1 percent, the most in a year. March is not generally regarded as a period where retail sales perform well.
Now sales are expected to continue this trend throughout the rest of the year and feed into the seasonal bump during the holidays. The component that is used for these GDP calculations excludes cars, building materials, and gasoline.
Will the Rise Be Enough?
If the United States’ retail sales are expected to grow and strengthen, it may not be enough for the dollar to recover and compete with the European currencies. There is a more powerful dynamic at work in Eastern countries.
Germany continues to trade confidently and heavily, despite the position adjustment not running its course. Instead of trying to calm the market down, President Mario Draghi of the European Central Bank told the community to get used to the uncertainty, and embraced the backed-up yield as a healthy development after the market indulged for such a long period of time. That level of confidence in the stock trade is not evident in the United States.
Trends in the Foreign Currency
The euro and sterling are moving closer to the value of the dollar. The euro is now valued at $1.1220. If the value reaches $1.118, that means United States retail is having a significant effect on the dollar. Sterling is valued at $1.5380, significantly higher than the U.S. dollar, but not too far out of reach if retail trends continue in the same fashion.
The dollar fell to JPY122.50 a few weeks ago, and Asia gathered it up very quickly. Europe extended the recovery of the dollar a little, as well. The next objective is near JPY124.5 and JPY124.55. The United States government seems to be making a more concerted effort to create distance from the Bank of Japan governor’s summation.
Separately, but also correlated to the recovery of U.S. currency, the Nikkei gathered nearly 1.7 percent to offset losses seen in recent months. The rally was also sufficient to close the gap created in the beginning of the year.
The New Zealand dollar has been demolished. It is off 2.7 percent, which is one of the biggest single-day declines in financial history. This occurred because of the central bank’s 25 BP rate-cut, and foreign investors are anticipating another cut. The central bank also cited small inflation influence and weaker demand in the later months. The Kiwi also dropped below seven cents, setting new multi-year lows.
These sharp losses also weighed on the Australian dollar, despite a strong employment report. The country created 42 thousand jobs in May, over two times more than the Bloomberg consensus expected. There were various factors that contributed to the devaluing of the Australian dollar. The monthly job report became more volatile and less helpful in anticipating the central bank’s reaction. Consumer inflation expectations slipped to three percent, from four.
Although China reported data that was largely in line with expectations (retail sales at ten percent in May and industrial output at six), it did not influence the perception that business policy relaxation has not been effective. Regular asset investment slowed down from 11 percent to 12. The China dollar currencies are tarred with the same brush that is weighing on many of the commodity producers in the emerging market today.
Although there seems to be little concrete evidence, the trends coming from Greece seem to be more promising. Greek investors have grown, and the local investing market is up seven percent. This is extremely remarkable, given Standard & Poor’s decision to cut its sovereign rating to CCC as a response to bundle payments to the International Monetary Fund this month.
What Does This Mean for the US Dollar?
Educational resources like purefinancialacademy.com describe the world market and U.S. market as inseparable. With the United States being a leader in the development of technology and products, ultimately losses seen domestically are evident throughout all other countries. However, given the information on foreign currency, it seems the opposite is not true, and that only retail sales in the U.S. significantly contribute to the value of the U.S. dollar. This is good news, considering the trend.