Tag Archive: Currency Movement
North America likely will Sell USD Bounce Seen in Europe
Overview: The failure of the Federal Reserve to push harder against the market's dovish views and the easing of financial conditions encouraged a risk-on trade that saw the dollar and yields slump and equities rally. There has been limited follow-through dollar selling today, and a small recovery ahead of the Bank of England and European Central Bank meetings.
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Will What the Fed Says be More Important than What it Does?
Overview: The focus is squarely on the Federal Reserve today. There is nearly universal agreement that it will lift the target by 25 bp. The market is inclined to see the shift as a sign that the Fed is nearing the end of its tightening cycle, and sees, at most, one more quarter-point hike. Despite the Fed's warnings, including in the December FOMC minutes, about the premature easing of financial conditions, the market has done precisely that.
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Position Adjustments at Month-End and Ahead of FOMC Outcome Lifts the Greeenback
Overview: A combination of month-end adjustments and
positioning ahead of the outcome of tomorrow's FOMC meeting has taken the shine
off equities and has helped lift the dollar. On the heels of yesterday's sharp
decline on Wall Street, several large markets in the Asia Pacific region,
including China's CSI 300, the Hang Seng, and both South Korea's Kospi and
Taiwan's Taiex fell by more than 1%. Although the eurozone eked out a small
expansion in Q4...
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Anti-Climactic Return of China
Overview: The re-opening
of China's mainland market amid reports of strong activity during the holiday,
was relatively subdued. The CSI 300 rose less than 0.5% and the Shanghai
Composite eked out less than a 0.2% gain. The 0.5% gain in the yuan was largely
in line with the performance of the offshore yuan. Indeed, it seems like a bit
like "buy the rumor sell the fact" type of activity as Hong Kong's
Hang Seng tumbled 2.75%, to give back...
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Week Ahead Alchemy: Can Powell Turn a Quarter-Point Move into a Hawkish Hike?
The new year is still
young, but the week ahead may be one of the most important weeks of
the year. The divergence that the market has been anticipating will
materialize. The Federal Reserve will most likely hike by 25 bp on Wednesday,
followed by half-point moves by the European Central Bank and the Bank of
England the following day. On Friday, February 3, the US will report its
January employment situation. It could be the slowest job creation...
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Subdued Ending to a Quiet Week, Ahead of Next Week’s Fireworks
Overview: Leaving aside the Australian dollar, which
is benefiting from the optimism over China's re-opening and a reassessment of
the trajectory of monetary policy after a stronger than expected inflation
report, the other G10 currencies traded quietly this week and are +/- less than
0.5%. The risk-on honeymoon to start the year remains intact. The MSCI Asia
Pacific Index has risen every day this week and index of mainland shares that
trade in...
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Euro Closed above $1.09 but Follow-Through Buying Limited
Overview: After
some intraday penetration, the euro finally settled above $1.09 yesterday. However,
follow-through buying has been limited and technical and option-related
resistance is seen in the $1.0940-50 area. The dollar is more broadly mixed
today, with the dollar-bloc and Norwegian krone leading the advancers. The
euro, yen, and sterling are nursing small losses near midday in Europe. The
recovery of US equity indices yesterday after gap...
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Bank of Canada may say Pause, but the Market Hears Finished
Overview: Amid sharp losses in the US equity futures, the US dollar is mostly firmer against the G10 currencies. The notable exception is the Australian dollar, where high-than-expected inflation boosts the risk of a more aggressive central bank.
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No Follow-Through Euro Buying while S&P Holds Yesterday’s Breakout
Overview: A quiet consolidative session has been recorded
so far today as North American leadership is awaited. The preliminary PMI
readings are mixed. Japan and the eurozone look somewhat better, but Australia
and the UK disappointed. The dollar is trading with a mostly firmer bias,
but largely confined to yesterday's ranges. The markets seem to be looked
ahead toward next week's Fed, ECB, and BOE meetings, and the return of China
from this...
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Euro Pokes Above $1.09. Will it be Sustained?
Overview: The Lunar New Year holiday has shut many centers in Asia until the middle of the week, though China's mainland is on holiday all week. The signaling of a downshift in the pace of Fed tightening by some notable hawks helped lift risk appetites ahead of the weekend and saw the
S&P 500 snap a four-day decline.
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Dismal UK Retail Sales Weigh on Sterling, While the Yen Softens
Overview: The US dollar is mostly softer today against the G10
currencies, with the notable exception, yen, Swiss franc, and sterling. The
risk-on mood is seen in the foreign exchange market with the Antipodean and
Scandi currencies leading the move against the greenback. The yen has fallen by
about 1.3% this week, leading losers, while sterling's 1.1% gain puts it at the
top. Despite the poor showing of US equities yesterday, risk appetites...
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Poor US Data Cast Doubts on New Found Hopes of a Soft-Landing
Overview: Yesterday's string of dismal US economic
data delivered a material blow to those still thinking that a soft-landing was
possible. Retail sales by the most in the a year. Manufacturing output fell by nearly 2.5% in the last two months of 2022. Bad
economic news weighed on US stocks. The honeymoon of New Year may have ended
yesterday. The US 10-year yield fell below 3.40% for the first time since the
middle of last September. The Atlanta...
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The BOJ Surprises by Standing Pat
Overview: The BOJ defied speculation and stuck to its
current policy, which saw the yen sell-off sharply. The dollar rallied about
3.4 yen before falling back. The greenback is broadly lower against the other
G10 currencies. However, for the fifth consecutive session, the euro has
stalled around $1.0870. While UK headline inflation softened, mostly due to fuel,
core prices were unchanged, and this may have helped sterling extend its recent
gains to...
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With Trepidation, the Market Awaits the BOJ
With the market nearly ruling out a 50 bp hike by the Federal Reserve on February 1, the interest rate adjustment appears to have largely run its course. This may be helping to ease the selling pressure on the greenback.
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Monday and Beyond
Monday Ranges: Euro: $1.0802-$1.0874JPY/$: JPY127.23-JPY128.87GBP: $1.2172-$1.2289CAD/$: CAD1.3353-CAD1.3418AUD: $0.6941-$0.7019MXN/$: MXN18.7313-MXN18.8566Rumors of an emergency BOJ meeting sent the dollar to its lows in Tokyo, slightly below the pre-weekend low (~JPY127.46). The on-the-run (most current) 10-year yield settled above the 0.50% cap and the generic 10-year bond has not traded below the 0.50% level since January 5. The market...
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Dollar Index Gives Back Half of 21-Month Gains in 3 1/2 Months
Overview: The continued easing of US price pressures
has strengthened the market's conviction that the Federal Reserve will further
slow the pace of rate hikes and that the terminal rate will be near 5.0%. The
decline in US rates has removed a key support for the US dollar, which has
fallen against all the G10 currencies this week. The Dollar Index has now retraced half of what it gained since bottoming on January 6, 2021. Meanwhile, there are...
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Is it Too Easy to Think the Market Repeats its Reaction to a Soft US CPI?
The market expects a soft US CPI print today, which has recently been associated with risk-on moves. The US 10-year yield is holding slightly above 3.50%, the lowest end of the range since the middle of last month. The two-year yield is a little above 4.20%, also the lower end of its recent range. Most observers see the Federal Reserve slowing the pace of its hikes to a quarter point on February 1.
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Greenback Consolidates Near Recent Lows Ahead of Tomorrow’s US CPI
Overview: Fed Chair Powell did not push against the easing of US financial conditions when he ostensibly had an opportunity yesterday. This coupled with expectations of another decline in the US CPI, which will be reported tomorrow, has kept the greenback mostly consolidating the losses seen last Friday and Monday.
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Consolidative Tone in FX
Overview: After sharp losses yesterday, the US dollar has stabilized today arguably ahead of Fed Chair Powell's speech at the Riksbank symposium. Yesterday's Fed speakers stuck to the hawkish rhetoric, and this seemed to help reverse the equity market gains, though the greenback remained soft.
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Greenback’s Sell-off may Stall Ahead of Powell Tomorrow
Overview: Don't fight the Fed went the manta as the
market took the US two-year yield back up to 4.50% in the aftermath of the FOMC
minutes last week, the highest in over a month. The minutes warned of a
premature easing of financial conditions. And then bam, softer than expected
hourly earnings and a weak service PMI and bonds and stocks rallied, and the
dollar was sold. This is a key part of the backdrop for this week, for which
several Fed...
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