The economic data released today for retail sales and unemployment claims both came in worse than expected. I mentioned before that the dollar is a win/win if we see a strong recovery (suggesting rate hikes) or a double-dip recession (back to safety). However, a prolonged, lackluster recovery can spell real trouble for the dollar as the anticipation for rate hikes move further into the future.
It should be noted that some in the Fed are sounding increasingly hawkish. Thomas Hoenig, president of the Kansas City Fed, suggested earlier this week that emergency measures should be expired as scheduled and that the Fed should be focused on the perils of raising rates too late rather than the weak, jobless recovery. Speaking to Bloomberg's Kathleen Hays, Hoenig said that “Monetary policy is about tomorrow. It is hard to keep that in mind when you have 10 percent unemployment.”
One must also bear in mind that markets "choose" how to interpret rate hikes. A small rate hike earlier than expected could be interpreted as a sign of confidence sending the stock market (and possibly dollar)higher.
As for today's disappointing numbers, as of mid day, they seem to have had a negative effect on the dollar but completely ignored by equities as the S&P climbed a couple of points higher, flirting with its major 1150 resistance level.
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