Overseas Headlines – December 22, 2016

Dollar dips but longer-term rally still seen in play
The dollar dipped for a second day on Thursday as traders booked profits ahead of a batch of U.S. data later in the day, though the greenback was still trading less than a percent away from a 14-year high touched earlier in the week. The U.S. currency has surged since last week, when the U.S. Federal Reserve hinted that interest rates would be increased three times in 2017 after its first rate hike in a year, with the dollar index – which measures the greenback against six major peers – hitting its highest since December 2002 .DXY. It had already been climbing in the wake of Donald Trump’s victory in the U.S. presidential elections six weeks ago, up 5 percent since then, with investors betting the president-elect’s planned tax cuts and increased spending in areas like infrastructure will boost growth and inflation, leading to higher interest rates.

Rally in U.K. Inflation-Linked Bonds Seen Losing Steam in 2017
Investors enjoying their best returns in five years on U.K. inflation-linked securities shouldn’t get too complacent. The 10-year break-even rate, a gauge of expectations for retail prices over the next decade, climbed last week to the highest since January 2014, as the pound’s plunge since Britain voted to leave the European Union helped pushed up import costs. While the outlook for faster inflation boosted so-called linkers, which have returned more than double that earned on conventional gilts this year, the rally might be running out of steam.

South America:

Brazil cenbank slashes growth forecast, signals heftier rate cut
Brazil’s central bank has cut its 2017 economic growth estimate and sees inflation remaining low in the next two years, signalling policymakers are ready to step up monetary easing to pull the economy out its worst recession in memory. In its quarterly inflation report released on Thursday, the bank lowered its growth forecast to 0.8 percent from 1.3 percent for 2017. It kept its 2017 and 2018 inflation baseline scenario forecasts at 4.4 and 3.6 percent respectively, below the official target of 4.5 percent.