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Dollar Gains On Yen In Asia With Caixin China Services PMI Ahead

1/4/2018, 10:07:35 AMMarket Analysis
Dollar Gains On Yen In Asia With Caixin China Services PMI Ahead

The dollar gained against the yen in early Asia on Thursday in a light regional data day outside of the Caixin services PMI out of China.

USD/JPY changed hands at 112.61, up 0.09%, while AUD/USD traded at 0.7825, down 0.13%. Teh Caixin services PMI for December is expected to come in at 51.8, a tick down from 51.9 in November.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, were last quoted up 0.36% to 91.89.

Minutes of the Fed's December meeting showed officials expect reductions in corporate and personal taxes to provide boosts to consumer and business spending, though they remain somewhat unsure of how much impact the recently passed reform effort will have.

The Federal Open Market Committee increased their expectations for 2018 GDP growth from 2.1%, or about trend since the post-financial crisis recovery, to 2.5%. “Most participants indicated that prospective changes in federal tax policy were a factor that led them to boost their projections of real GDP growth over the next couple of years,” the minutes stated.

While generally looking favorably on the rising stock market indexes, some officials have expressed concern that keeping policy overly accommodative could inflate bubbles.

“In light of elevated asset valuations and low financial market volatility, a couple of participants expressed concern that the persistence of highly accommodative financial conditions could, over time, pose risks to financial stability,” the minutes said.

Overnight, the dollar rebounded from nearly four-week lows against a basket of major currencies on Wednesday buoyed by bullish economic data stoking investor expectations for solid economic growth.

The Institute for Supply Management (ISM) index of national factory activity rose to a reading of 59.7 in December from 58.2 in the previous month. That beat economists for forecast for reading of 58.2.

A reading above 50 indicates growth in manufacturing, well below 50 indicates contraction.

The Commerce Department said construction spending rose 0.8% to a record of $1.257 trillion in November, topping economists forecast for a 0.6% rise.

The uptick in economic activity has fueled expectations for an uptick in inflation as Bank of Tokyo Mitsubishi recently said that strong gains in the ISM Prices Index in December pointed to inflationary pressures in the months ahead, which may strengthen the case for additional monetary policy tightening.

Other market participants, however, tempered expectations for a sharp turnaround in inflation as the Bank of Montreal warned that rising manufacturing costs are less important to the Fed’s inflation concerns than rising consumer costs.

The most recent reading of the Core Price Expenditure (CPE) Index, the Fed’s preferred measure of inflation, showed inflation remained well below the central bank’s target of 2%