Tag Archive: ECB

Investor Anxiety Continues to Run High even If More Comfortable ECB 50 BP Tomorrow and 25 bp Next Week by the Fed

2023-03-15

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2023-03-15

Overview: The capital markets remain unsettled. Asia-Pacific bourses rose, but European markets are sharply lower, with the Stoxx 600 off 1.3%, giving back the lion's share of yesterday's gains and US equity futures are lower. Benchmark 10-year yields are off 3-9 bp in Europe, with widening core-periphery yields. The yield on the 10-year US Treasury is off a dozen basis points to about 3.56%. Two-year yields are also sharply lower, led by the 15-16...

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Powell Sends the Two-Year Yield above 5% and Ignites Powerful Dollar Rally

2023-03-08

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2023-03-08

Overview:  Federal Reserve Chair Powell's comments to the Senate Banking Committee were seen as hawkish by the market, even though it has been clear to most observers that the 5.10% median terminal rate that the Fed projected in December would be increased. Also, it seemed well appreciated a few Fed officials support a 50 bp hike at the February 1 FOMC meeting, two days before a "hot" jobs report that showed over 500k jobs were filled. It...

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US Dollar is Better Bid Ahead of Powell, while Aussie Sells Off on Dovish Hike by the RBA

2023-03-07

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2023-03-07

Overview: The US dollar is trading with a firmer bias against nearly all the G10 currencies ahead of Federal Reserve Chairman Powell's semi-annual testimony before Congress. Speaking for the Federal Reserve, the Chair is likely to stay on message which is higher rates are necessary to cool the overheating economy. This comes on the heels of the Reserve Bank of Australia's 25 bp hike and indication that it is not pre-committing to an April hike. The...

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Potential Brexit Breakthrough Helps Sterling, while France and Spain Report Stronger Price Pressures

2023-02-28

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2023-02-28

Overview: There are two important developments. First, the stronger than expected February inflation reports from France and Spain have sparked a jump in European interest rates and the swaps market is beginning to price in a 4% terminal rate by the European Central Bank. The deposit rate is now at 2.50% and is widely expected to rise to 3.0% in the middle of next month. Second, a tentative agreement to resolve the dispute over the Northern Ireland...

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Ueda Day

2023-02-24

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2023-02-24

Overview:  Rising rates and falling stocks provided the backdrop for the foreign exchange market this week. The dollar appreciated against all the G10 currencies but the Swedish krona, which is still correcting higher after the hawkish pivot by the central bank. The market looks for a later and higher peak in the Fed funds rate. This coupled with the risk-off sentiment helped the dollar extend its recovery after falling since last...

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Fed Tightening Seen Extending into Q3

2023-02-23

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2023-02-23

Overview:  The prospect that the Federal Reserve tightening cycle continues into early Q3 is underpinning the greenback today against most of the G10 currencies. The dollar bloc is the notable exception, and they are posting minor gains, perhaps encouraged by the firmer equity markets. The minutes of this month’s FOMC meeting appear to show wide support for quarter point hikes going forward and there did not seem to be much discussion of the...

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Dollar and Rates Soften a Little Ahead of US CPI

2023-02-14

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2023-02-14

The focus is on the US CPI report today, but the price action is anything but intuitive. Although the revisions of the basket and methodological changes reinforce expectations for the largest rise in three months, the US dollar continues to trade heavily after rallying last week. The dollar-bloc currencies are underperforming today. And US rates are softer. The US 2- and 10-year yields are 1-2 bp lower.

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A Day of Surprises

2023-02-10

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2023-02-10

(I am on a business trip and did not intend to post any analysis today. However, there have been a number of unexpected developments that warrant some commentary. Thanks for bearing with me.) Japanese press reports that the BOJ Deputy Governor Amamiya turned down the opportunity to become the next BOJ governor. Instead, next week, former BOJ board member Kazuo Ueda will be nominated. The market reacted dramatically, taking the yen sharply higher...

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Markets Calm after Dramatic Swings on Powell’s Comments

2023-02-08

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2023-02-08

The US dollar is mostly trading with a downside bias today against the G10 and most emerging market currencies. It had begun the week extending the gains spurred by the dramatic jump in nonfarm payrolls and the strong ISM services survey. Market expectations for the trajectory of Fed policy in the first part of this year converged with the Fed's December dot plot. The market now leans toward two more quarter-point hikes this year.

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The Dollar Pares Yesterday’s Gains but Near-term Change in Sentiment may be at Hand

2023-02-03

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2023-02-03

Overview: The dollar remained firm yesterday, even after the ECB's hawkish stance, reaffirming its intention to hike rates by another 50 bp next month. We had expected the greenback to have been sold in North America yesterday. That this did not materialize warns that despite its pullback in Asia and especially Europe today, that near-term sentiment may be changing with the Fed and ECB meetings over and die cast for next month, where the Fed is...

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North America likely will Sell USD Bounce Seen in Europe

2023-02-02

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2023-02-02

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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Bank of Canada may say Pause, but the Market Hears Finished

2023-01-25

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2023-01-25

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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Euro Pokes Above $1.09. Will it be Sustained?

2023-01-23

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2023-01-23

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

2023-01-20

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2023-01-20

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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The BOJ Surprises by Standing Pat

2023-01-18

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2023-01-18

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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Consolidative Tone in FX

2023-01-10

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2023-01-10

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

2023-01-09

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2023-01-09

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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USD Stretched Ahead of Employment Report, while Yuan Jumps on Hopes of New Property Initiatives

2023-01-06

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2023-01-06

Overview: The US dollar extended yesterday's gains as the market adjusts positions ahead of the jobs data. Yesterday and today's price action looks to have strengthened the near-term technical outlook for the greenback. However, the intraday momentum indicators are stretched. This warns of the risk of a counter-intuitive move after the data, barring a significant surprise. Meanwhile, one of the Fed's leading hawkish voices, St. Louis Fed President...

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Yesterday’s Gains Unwound may Make the Greenback a Better Buy Ahead of FOMC Minutes

2023-01-04

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2023-01-04

Overview:  Yesterday's greenback gains have been mostly reversed today. New efforts by China in its property market and anticipation of more stimulus helped rekindle the animal spirits today. Asia and Europe shrugged off yesterday's losses on Wall Street and the rally in bonds continued. The 8-12 bp decline in European benchmark 10-year yields comes even though the final composite PMI was better than expected fanning hopes of a short and shallow...

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European Rates Continue to Surge, Sending Stocks Spiraling Lower

2022-12-16

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2022-12-16

Overview: Seven of the G10 central banks pumped the brakes between last week and this week as they purposely seek to push demand back into line with supply. And there are more signs that they are succeeding in weakening growth impulses. The dramatic surge in European bond yields continues today with 10-year rates mostly rising another 13-15 bp.

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