The US dollar has been under pressure due to weaker economic data, but it avoided a major setback by narrowly escaping the risk of hitting the upper debt limit, which could have led to a government shutdown. Meanwhile, better-than-expected data from Poland provided some positive context.
Weaker Data for the Dollar
Friday’s data on American consumer spending and income caught the markets by surprise. On the surface, in a heavily indebted society—especially with credit card debt—lower-than-expected spending could be seen as a positive sign. However, this was not the case. Although spending increased by only 0.4% in November, instead of the anticipated 0.5%, the dollar weakened. A smaller-than-expected increase in income did not help either. For the markets, consumer spending is the more critical indicator, as it stimulates the economy in the short term. Meanwhile, massive debt is seen as a long-term problem. After the release of this data, the dollar lost ground against the euro, briefly reaching a level of 1.0450 EUR/USD. Despite this drop, the dollar is still half a cent stronger than it was before the last Fed meeting.
Retail Sales Accelerate in Poland
On Friday, Poland’s retail sales data was also released. A year-on-year growth of 3.4% is significant, exceeding the expected 2.1%. However, for economies at Poland’s level of development, growth around 3% is considered relatively low. These figures are seen as positive primarily because they surpass expectations, rather than being particularly strong in absolute terms. The Polish złoty is currently near its highest levels against the euro, which is the main reference point for the currency. To see a strong appreciation of the Polish złoty, more substantial market developments are needed beyond just these data.
No Government Shutdown This Time
The term “lockdown” has been associated with the COVID-19 pandemic for the past few years, but it also has a peculiar political meaning in the United States. In the US, the system has a maximum debt limit, which is theoretically a good way to prevent politicians from overspending in order to gain votes. Theoretically, because this limit is regularly raised. The primary effect of this debt limit is the so-called “government shutdown.” If the two political parties cannot agree, non-essential government spending is halted, and employees are forced to take unpaid leave. Currently, the spending increase has passed both chambers of Congress and only requires the president’s signature. It’s important to note that this agreement raises the debt limit to a level that will be reached by mid-March. If President Joe Biden does not sign the new limit, we may face a very active end of the year on the foreign exchange markets.
No Major Economic Data Scheduled for Today
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl
Source: managerplus.pl
