If you’ve been thinking recent US economic data has been looking a little spotty, at least compared to the broad strength seen earlier in the year, you’d be right.

As seen in this chart from Westpac Bank, the proportion of positive US economic data surprises compared to market consensus has fallen below 50% in the past month, helping to explain why the Atlanta Fed’s GDPNow forecast — an indicator that aims to predict the outlook for US economic growth — has also come off the boil during this period.

As Sean Callow, Senior Currency Strategist at Westpac, the decline in upside data surprises has not gone unnoticed by financial markets who are starting to have doubts about the number of times the US Federal Reserve will be able to lift interest rates next year.

“Market pricing for a December rate rise is little changed at around 70%, but doubts over 2019 have grown, he says”

“The implied yield on the January 2020 Fed funds futures contract is 2.74%, down from 2.81% a week earlier and 2.94% on 5 October.”

The fed funds rate range currently sits at 2% to 2.25%.

Recent commentary from several leading US Fed officials, including Chair Jerome Powell and vice-Chair Richard Clarida, has also conveyed a more cautious tone, something Callow believes could prove to be influential on rate expectations and US dollar in the week ahead with both scheduled to deliver speeches.

“Unless they are emphatic that softer data momentum, tumbling oil prices and tighter financial conditions are unlikely to impact on monetary policy over the year ahead, the US dollar should be on the back foot,” Callow says.

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