Category Archive: 4) FX Trends
Euro: Thumbnail Sketch Ahead of the ECB Meeting
The euro has traded between roughly $1.0485 and $1.1100 so
far this year. The average is about $1.08, where it traded above yesterday for
the first time in 2 ½ weeks.
Recall that the euro rallied from around $1.05 in mid-March
(amid speculation that the banking stress was going to force the Fed to cut) to
around $1.1100, where it stalled in late April and early May.
We argued that the rate cut expectations had swung too far
and that as they...
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Fed Day: Skip = Hawkish Pause, but Market Says Finito
Overview: The year-end effective Fed funds rate
implied in the futures market is about 5.11%. The rate has been averaging 5.08%
since the Fed hiked rates last month The Fed may go to pains to explain that
the steady that to be announced later today is just a pause to get a better
read on the economy, the market favors this to be the end of the tightening
cycle. The dollar is trading softer against nearly all the G10 currencies. Emerging
market...
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PBOC Surprise Rate Cut and a Strong UK Labor Market Report Ahead of US CPI
Overview: A surprise cut in China's seven-day repo
and a stronger than expected UK employment report are session's highlights
ahead of the US CPI. The base effect alone suggests a sharp fall in the
year-over-year rate, while the median forecast in Bloomberg's survey has been
shaved to a 0.1% month-over-month gain. The dollar is under pressure and is
weaker against nearly all the G10 currencies. It is mixed against the emerging
market currencies....
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Ahead of the Week’s Central Bank Meetings, Risk Appetites Stoked
Overview: Today may be the calm ahead of a
tomorrow's US CPI and rate decisions by the Fed, ECB, BOJ, and PBOC over the
next few days. Most large bourses in the Asia Pacific region rose and Europe's
Stoxx 600 is snapping a three-day decline. US index futures are trading higher.
US 10-year yield is slightly firmer as are core European benchmark yields. The
dollar is under broad pressure and is weaker against the G10 currencies. Against
emerging...
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US CPI, Fed, ECB, BOJ and the Week Ahead
Of the three G3 central banks
that meet in the days ahead, the market is the most confident of a rate hike by
the European Central Bank. The market sees a hawkish hold from the Federal
Reserve. However, the idea of a skip, a topic which even Fed officials have
broached, would seem to pre-commit to another hike, and this is not typically
the central bank's modus operandi. Moreover, it may be difficult for the Fed to
resume hikes in July if inflation...
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Dollar Stabilizes Ahead of the Weekend
Overview: Long US dollar positions were pared yesterday as rates unwound the
gains scored in the wake of the Bank of Canada's surprise hike on Wednesday. It
is consolidating today as the market looks toward next week’s central bank
meetings (FOMC, ECB, and BOJ) and a flurry of data. It is also possible that
China shaves the benchmark one-year medium-term lending facility rate. Broadly
speaking the greenback is still tracking rates, and the more...
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Japan’ Q1 GDP was Revised Up, While the Eurozone’s was Revised Down
Overview: The back-to-back surprise rate hikes by
the Australia and Canada spurred speculation that the Fed could hike next week,
and this lifted US rates and helped the dollar recover. The odds of a hike
increased, according to the indicative pricing in the Fed funds futures market
from about a 20% chance to a little above 35%. now. At yesterday's high, the
two-year yield was up a little more than 25 bp since the low before the US
employment data...
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RBA Surprises with a Quarter-Point Hike and German Factory Orders Disappoint
Overview: The Reserve Bank of Australia surprised
many with a quarter-point hike and German factory orders unexpectedly fell.
Reports suggest that China has asked banks to cut deposit rates. The next
result is the Australian dollar is the strongest currency in the G10 and helped
lift the Canadian dollar ahead of the Bank of Canada meeting tomorrow. Australian
stocks sold off (~1.2%) while large markets outside of China rose in the region.
Europe's...
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Dollar Gains Extended, Oil Steadies at Higher Levels after Saudi’s Cut, US Bill Deluge Begins Today
Overview: The US dollar has extended its post-employment
gains today, helped by firmer rates and several countries seeing downward
revisions from the preliminary May PMI. The greenback is trading with a firmer
bias against all the G10 currencies and most of the emerging market currencies,
including Turkey, India, and China. July WTI gapped higher after the Saudi
Arabia announced a voluntary and unilateral cut of one million barrels a day in
output...
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Week Ahead: Australia and Canada–Hawkish Hold? US Bill Issuance Jumps
True
to the historic pattern, the US debt ceiling was used by the party not in
control of the executive branch to exact spending concessions. Despite the
extreme partisanship, the brinkmanship tactics, and fears that this time would
be different, there was no default. As Bismarck once quipped, "Laws are
like sausages and it is best not seen them being made." Still, as a
consequence, the rebuilding of the Treasury's account and bill...
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US Debt Ceiling Drama Ends with a Whimper, Focus on US Jobs and Fed
Overview: Another bizarre US debt-ceiling episode is over. President
Biden will sign the bill that was approved by the Senate late yesterday. It is
a bit anticlimactic for the market, for which the US jobs data is the key focus
now. Outside of the fiscal drama, the Federal Reserve leadership has
effectively push against market expectations for a hike later this month. The
odds were around 70% earlier this week, and ahead of the jobs report, is...
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Dollar Steadies After Fed’s Push Back
Overview: The market was gearing up for a June Fed
hike and officials and this helped lift the greenback. However, the Fed
Governor Jefferson, nominated to be the next vice-chair, pushed back against it.
His views are thought to reflect the Fed's leadership. Philadelphia Fed's
Harker, who is a voting member of the FOMC also backed a pause. This is not
quite what we expected when we suggested the US interest rate adjustment was
complete or nearly...
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Debt Ceiling Progress, Weak Chinese and Japanese Data, and Soft EMU CPI, Sends the Dollar Higher
Overview: The US budget agreement passed a House
committee vote by 7-6 and the bill is scheduled to be voted on by the entire
House today before the Senate take it up with the idea of passing it Monday.
The procedural step plus the weakness of China and Japanese data and soft CPI
figures from Europe has lifted the greenback against all the major currencies. The
euro and Australian dollar have been sold to new lows, while the dollar holds
ever so...
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The Dollar Reverses Early Gains
Overview: The debt ceiling drama is not over.
The agreement between the negotiating teams of President Biden and House
Speaker McCarthy sets the stage for the next act in the drama: each side must
deliver the votes. A preliminary vote today in the House of Representatives is
likely today ahead of floor vote tomorrow. Still, the market is optimistic, and
risk is favored. Asia Pacific bourses were mixed today. We note that the chip
sector helped...
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June 2023 Monthly
June is a pivotal month. The US debt-ceiling
political drama cast a pall over sentiment even if it did not prevent the
dollar from rallying or the S&P 500 and NASDAQ from setting new highs for
the year. It is as if the two political parties in the US are playing a game of chicken
and daring the other side to capitulate. Both sides are incentivized to take to
the brink to convince their constituents that they secured the best deal
possible. No...
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The Greenback Stalls after Yesterday’s Surge as US Negotiators Move Closer to Last-Minute Deal
Overview: Yesterday's dollar surge has stalled. It is
consolidating its gains and is softer against all the G10 currencies. After
popping above JPY140 yesterday, there were no follow-through greenback buying
in Tokyo. Most emerging market currencies are also firmer, including the South
African rand, which plummeted by 2.8% yesterday on the back of the central
bank's warning of downside currency risks as it delivered a 50 bp hike. The
Chinese yuan...
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Fitch Puts US on Negative Credit Watch and the Dollar Extends its Gains
Overview: Concerned about the political wrangling over servicing US
debt, Fitch put the US on negative credit watch. Besides chin
wagging and finger pointing, it has had little perceptible impact. The dollar
is mostly higher, reaching new highs for the year against the Japanese yen,
Chinese yuan, and the Antipodean currencies. The euro and sterling met
retracement objective we have targeted (~$1.0735 and $1.2435, respectively).
The greenback is...
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RBNZ Delivers a Dovish Hike and UK Inflation Surprises to the Upside
Overview: Equities in the Asia Pacific region and
Europe are being led lower by the sell-off in the US yesterday. All the large
Asia Pacific markets fell with Hong Kong and mainland shares setting the pace.
Europe's Stoxx 600 is off nearly 1.5%, which would be the largest loss in two
months. Consumer discretionary, financials and real estate sectors are off
nearly 2%. US equity futures have a softer bias. European 10-year yields are
mostly 2-3 bp...
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Yen Recovers from New 2023 Low, while Sterling Sets a New Low for the Month
Overview: The dollar is bid. Only the Japanese yen
is holding its own against the greenback but only after it fell to new lows for
the year. The Scandis and Antipodeans are the heaviest among the G10
currencies, while sterling has fallen to a new low for the month. The prospect
of a rate hike tomorrow has not protected the New Zealand dollar much and it is
off nearly 0.5%. Emerging market currencies are more mixed. Outside of the
Russian rouble,...
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The Dollar Consolidates after Powell Sapped its Mojo
Overview: Federal Reserve Chair Powell's offered a
stronger case for a pause in the monetary tightening before the weekend and
this sapped the dollar's mojo. The greenback is mostly consolidating through
the European morning in quiet turnover. The JP Morgan Emerging Market Currency
Index is trying to snap a four-day decline. The South African rand is
recovering from its recent slide and is up nearly 1%. The South Korea won is
benefitting from...
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