Tag Archive: macro

Week Ahead: Is the Closeness of the US Election a Source of Dollar Demand?

2024-10-19

by

2024-10-19

The dollar rose against all the G10 currencies last week, but it was not because of higher US rates. In fact, the 10-year US Treasury yield fell for the first time in five weeks. The two-year yield did not rise for the first time in three weeks. Rather than an increase in US rates, several other countries' rates fell. The result was that the US 2-year premium over Germany rose for the fourth consecutive week and is now the most since June. The US...

Read More »

Week Ahead: Is the US Rate Adjustment Nearly Over? Be On Guard for Reversal Patterns

2024-10-12

by

2024-10-12

The combination of the stronger-than-expected US September jobs report and the slightly firmer inflation readings lifted US interest rates and the dollar. Several Fed officials spoke, and it did not appear that the employment or price reports changed views as much as it had impacted the capital markets.

Read More »

Week Ahead: US CPI, China Returns, RBNZ to Cut 50 bp (?)

2024-10-05

by

2024-10-05

There were several developments last week that shape the investment climate. First, the September US employment report was stronger than expected and this reinforces the message from Fed Chair Powell. After initiating the easing cycle with 50 bp cut, the central bank is not in a rush and two quarter-point cuts in Q4 is most likely scenario. Once again, the market has converged to the Fed rather than the other way around. Second, the new Japanese...

Read More »

October 2024 Monthly

2024-09-28

by

2024-09-28

With the Federal Reserve's 50 bp rate cut, seven of the G10 central banks have begun an easing cycle that will extend, broaden, and may accelerate going forward. Australia and Norway will likely join the party next year, while some, like Canada and Sweden may increase the pace of its cuts in Q4.

Read More »

Week Ahead: Did the Fed’s Rate Cut Signal a Near-Term Low in US Rates?

2024-09-21

by

2024-09-21

The Federal Reserve kicked off its easing cycle with a 50 bp rate cut on September 18. It is the seventh G10 central bank to cut rates this year. Japan is going in the other direction, albeit slowly. Norway's central bank says do not cut on a rate cut this year but be more confident of rate cuts next year. That leaves the Reserve Bank of Australia, which meets this week. It has been pushing against market speculation of a rate cut this year, and...

Read More »

Week Ahead: Four G10 Central Banks Meet, Only the Fed Moves

2024-09-14

by

2024-09-14

The market had been gradually scaling back from speculation of a 50 bp cut this week by the Federal Reserve. The euro and sterling tested important technical support near $1.10 and $1.30 respectively. The Dollar Index set last week's high after the August CPI. However, the general tone of the markets changed, spurred at least initially by a Dow Jones story that many observers believe was likely planted by senior Fed official to put a 50 bp cut back...

Read More »

Week Ahead: Can the US CPI Do What Payrolls Didn’t and Persuade the Market that the Fed Will Deliver a 50 bp Cut ?

2024-09-07

by

2024-09-07

After the US jobs report and Fed speak, the market scaled back the odds of a 50 bp cut at the September 17-18 FOMC meeting. It settled last week slightly below a 30% chance. The odds were shaved for the second consecutive week. Fed officials have indicated that the full employment mandate is now of greater significance given its growing confidence that inflation is heading back toward its 2% target. Next week's August CPI and PPI are likely to be...

Read More »

September 2024 Monthly

2024-08-31

by

2024-08-31

As the summer in the Northern Hemisphere gives way to the fall, monetary policy and politics will shape the investment and business climate. Even if history does not repeat itself, there are still insights to be gleaned. In the last few months of 2023, the market expected aggressive interest rate cuts this year.

Read More »

Week Ahead: Inflation Gauges and Stretched US Dollar Drop

2024-08-24

by

2024-08-24

In the middle of last week, the Fed funds futures discounted 103 bp of cuts this year. There was some movement but after Fed Chair Powell’s, but the market finished the week with 104 bp of cuts priced into the Fed funds futures curve. The two-year note yield settled at a three-week low and the dollar slumped. The Dollar Index's 1.7% lost last week, its fifth consecutive drop and the largest weekly decline of the year. Although the euro rose to...

Read More »

Week Ahead: Price Action Might be More Important than Data, Barring US CPI Surprise

2024-08-10

by

2024-08-10

There is no need to debate whether it was tightening by the Bank of Japan or the fourth consecutive rise in the US unemployment rate that spurred the dramatic market reaction at the start of last week. It seems reasonable that both played a role. And the dramatic unwinding of short yen positions, which appeared to help fuel a recovery of the Swiss franc, Chinese yuan began before the Bank of Japan meeting and the US employment report. Moreover, on...

Read More »

August 2024 Monthly

2024-08-03

by

2024-08-03

We suspect the long-anticipated turn of the US dollar is at hand. The policy mix of tight monetary policy and loose fiscal policy is coming to an end. The moderation of price pressures for the past three months has boosted the confidence of Federal Reserve officials that inflation is headed back toward its 2% target. At the conclusion of the July FOMC meeting, Federal Reserve Chair Powell gave his strongest signal yet that a rate cut at the next...

Read More »

Week Ahead: Alphabet Soup–BOJ, EMU CPI, FOMC, BOE, US NFP

2024-07-27

by

2024-07-27

A dollar-centric narrative would note that the greenback rose against most of the G10 currencies last week. Yet, the dollar, the most actively traded currency, was arguably not the prime mover in recent days. Rather, the unwinding of carry trades seems to be the driver of much of the price action. The low yielding yen and Swiss franc were the only G10 currencies to rise against the US dollar. The Australian and New Zealand dollars were the worst...

Read More »

Week Ahead: US Dollar to Extend Recovery while Stocks Correct Lower

2024-07-20

by

2024-07-20

The consolidative phase for the dollar, we anticipated last week, after its recent drop, is evolving into a proper upside correction. We expect the dollar to trade broadly firmer over the next week or so. It is also part of a larger picture, where US interest rates also look to have put in a near-term bottom and are set to recover. Ideas that next US administration may favor a weaker dollar has become a talking point. Yet, of all the forces that...

Read More »

BOJ Appears to have Intervened last Friday Too, but Market Sells Yen Anyway

2024-07-16

by

2024-07-16

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The US dollar is consolidating in narrow ranges against most of the G10 currencies. The Australian and New Zealand dollars, along with the Japanese yen are off by about 0.25%, but the others are +/- 0.10. The latest BOJ data appears to imply that officials intervened not only last Thursday, but Friday as well. Emerging market currencies are mixed but mostly...

Read More »

Week Ahead: Following Up a Watershed Week

2024-07-13

by

2024-07-13

Slowing US jobs growth, the third consecutive rise in the unemployment rate, and the softer than expected CPI are a watershed. Although the Federal Reserve will not cut rates when it meets at the end of the month, Chair Powell will likely lay the groundwork for a cut in September. Indeed, the Fed funds future market has priced in slightly more than a 25 bp cut. The deteriorating economic conditions dragged US two-and 10-year yields to their lowest...

Read More »

Week Ahead: Market Eyes Two Fed Cuts this Year ahead of June CPI

2024-07-06

by

2024-07-06

Four drivers are shaping the investment climate. First, ahead of the run-off elections in France, the market feels more comfortable that Le Pen will not secure a parliamentary majority. The French premium over Germany narrowed to 65 bp, falling by about 14 bp last week, and arguable a supportive factor for the euro. Second, the British election was largely a foregone conclusion, and Labour did secure majority. It ought not be construed as a shift...

Read More »

July 2024 Monthly

2024-06-29

by

2024-06-29

July is about the Olympics and reaping what was sown in June. The UK and France will have new governments. There will be a new European Commission. China will hold its Third Plenum session, out of which many expect new measures to support the economy.The Bank of Japan may announce a plan to reduce its bond purchases, which are approximately the same as the amount maturing every month and hike rates at the end of July. Reducing its JGB holdings is...

Read More »

Week Ahead: Politics, Economics, and the Yen

2024-06-22

by

2024-06-22

The relationship between interest rate expectations and the foreign exchange levels is more complicated than many textbooks or conventional wisdom allows. Australia's and Norway's central banks pushed against rate cuts this year, and their currencies were rewarded. The Reserve Bank of New Zealand said more or less the same thing, but investors are less sanguine and took the New Zealand dollar down as much as it took the Australian dollar higher....

Read More »

Week Ahead: BOE and RBA to Standpat, Political Anxiety Runs High, Giving the Dollar a Lift

2024-06-15

by

2024-06-15

Under other circumstances, the softer than expected US inflation readings and the subsequent sharp drop in US interest rates would have weighed on the US dollar. Instead, the greenback managed to do well, especially against the euro, sterling, and Japanese yen. The 0.6% rise in the Dollar Index was the biggest gain in two months. The Fed's hawkish hold, with the median dot shifting to one cut this year from three in March (and last December) means...

Read More »

Week Ahead: FOMC, BOJ, and US and China Inflation

2024-06-08

by

2024-06-08

The market got caught leaning the wrong way. The weakness in April's high-frequency US data encouraged participants to push the US two-year yield to its recent floor near 4.70% and took the 10-year yield to two-month lows, slightly above 4.25%.

Read More »