Investors Want a Weaker USD, They Must be Patient for the ‘Buck’ to Weaken

Investors Want a Weaker USD, They Must be Patient for the ‘Buck’ to Weaken


The Fed’s Beige Book was released Wednesday showing the US economy continues to be performing strongly.

Manufacturing was stronger, employment remains strong across the economy, but bad weather and bad politics have taken their toll. On the latter, 50% of the reporting areas said that the government partial shutdown had been hurting local growth.

About the tightness in the labor market, the Fed’s Beige Book reads: “Labor markets remained tight for all skill levels, including notable worker shortages for positions relating to information technology, manufacturing, trucking, restaurants, and construction.

Contacts reported labor shortages were restricting employment growth in some areas. Wages continued to increase for both low- and high-skilled positions across the nation, and a majority of Districts reported moderately higher wages.”

The tightness of the US labor market has now reached a mark where it may be limiting growth as well. There are not enough workers to hire to do the jobs that need to be done.

This is consistent with an economy that should “stabilize” once politics and climate are more stable. And, if anything, the tone was a bit more positive than might have been expected.

Fed President Williams, who could be considered to be the leading economic voice on the modern FOMC reiterated yesterday in a prepared sppech the “patience-line” that has become such a Key phrase for the current Fed.

In his speech, he said: “So what does the future hold? With a strong labor market, moderate growth, and no sign of any significant inflationary pressures, the baseline outlook is quite favorable. The base case outlook is looking good, but various uncertainties continue to loom large. Therefore, we can afford to be flexible and wait for the data to guide our approach.”

That is consistent with the economic picture of the Beige Book as patience, once the temporary distortions fade away, is a perfectly reasonable response to the current US economic situation.

Besides all that and what may turn out to become one of the more important focal points for the Fed this year is corporate pricing power.

There has been mixed evidence about the ability of firms to pass on higher costs to their customers with tighter labor markets putting pressure on labor costs, the battle between higher inflation and squeezed profit margins has begun. Squeezed profit margins are the more probable victim, at least for the time being.

Investors can expect further USD gains near-term.  Meantime, the .DXY has risen above the 97 handle.

Key Currencies

  • EURUSD: Unch at 1.1307
  • GBPUSD: -0.1% to 1.3171
  • USDCNH: +0.2% at 6.7182
  • USDJPY: -0.1% to 111.80

Patience, President Trump wants a softer USD, he will get it.

America First!

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