Dollar Shrugs off Consumer Confidence
Like the University of Michigan, the Conference Board reported a sharp improvement in consumer sentiment in the month of December. For the third month in a row, the Consumer Confidence index rose from an upwardly revised 53.6 to 55.9, the strongest level since August 2008. Since the Conference Board report follows the UMich survey, it tends to elicit only a limited reaction in the U.S. dollar. According to the details of the report, consumers grew more optimistic about the current and future conditions and less pessimistic about their ability to find jobs. The Richmond Fed index also rose from -4 to -2, reflecting a slower contraction in manufacturing activity.
FOMC Begins 2 Day Meeting
Today, the Federal Reserve begins their 2 day monetary policy meeting and so the FOMC announcement and President Obama's State of the Union address will be the primary focus of the foreign exchange market over the next 36 hours. The U.S. central bank is not expected to alter interest rates or adjust their view that rates will remain at exceptionally low levels for an extended period of time. The only area where they could make adjustments are their assessment of current and future growth. Recent labor market and consumer spending reports have been below expectations and household net worth shrunk by $500 billion. Based upon these factors, the Federal Reserve should grow less optimistic but given the potential impact that a change in tone could have on the financial markets, the risk of triggering further volatility in currencies and equities is far greater than the risk of leaving the FOMC statement virtually unchanged.