Economic Conditions Archives - Page 14 of 65

Was Indiana Good for the Dollar?

Has the dollar turned now that Cruz dropped out of the Republican primary and Trump has secured the nomination? The greenback has extended yesterday’s reversal higher. The euro had briefly poked through $1.16 and closed on its lows a little below $1.15. Sterling peaked above near $1.4770 and finished near$1.4535 for a potential key reversal. Despite weakness in US stocks and a sharp drop in US yields, two usual props for the yen, the dollar recovered from JPY105.50 to over JPY106.50.

That European Vacation is Getting Expensive

The US dollar’s downtrend is extending. The euro traded above $1.16 for the first time since last August. With Japanese markets closed for the second half of the Golden Week holidays, perhaps participants felt less hampered by the risk of intervention and pushed the dollar to almost JPY105.50. Despite an unexpectedly large fall in the UK’s manufacturing PMI (49.2 from 50.7), sterling has pushed to its highest level in four months (~$1.4770).

Where to Turn Your Attention with the Fed on Hold?

The die is cast. The Federal Reserve is on an extended pause after the rate hike last December. The market remains convinced that the risk of a June hike is negligible (~ less than 12% chance). The ECB has yet to implement the TLTRO and corporate bond purchase initiatives that were announced in March. The impact of its programs has to be monitored before being evaluated. It is unreasonable to expect any new initiative in the coming months.

The Dollar Has Seen Better Days

April was a cruel month for the US dollar. It fell against all the major currencies; even those whose central banks have negative yields. The greenback also fell against nearly all the emerging market currencies, but the Philippine peso and the Polish zloty.

The Non-Consensus View

The White Queen in Alice in Wonderland (Through the Looking Glass) confesses that when she was younger, she could believe six impossible things before breakfast. She encourages Alice to do the same. It appears many in the market are taking the Queen’s advice too seriously.

Here is a quick thumbnail sketch of seven of our non-consensus views:

No Love for the Dollar

Two main forces in the foreign exchange market are rippling through the capital markets. The first is the continued weaker dollar tone. The combination of what appears to be a stagnating US economy (0.5% annualized pace in Q1) and a market that does not believe the Federal Reserve will hike rates in June, and is in fact, judging from the Fed Fund futures strip, skeptical of a single hike this year.

Global Financial Tension is Palpable

One can appreciate the frustration in Tokyo. The Bank of Japan surprised the world by adopting negative rates in January and the yen rallied. Today it disappointed many by not easing, and the yen rallied. The BOJ next meetings in mid-June and like this week, the outcome of its meeting will be announced the day after the FOMC meeting. There is some idea that BOJ may be waiting for Abe’s new fiscal package and the G7 meeting Japan hosts next month.

Waiting for Incentive to Trade (read FOMC statement)

The foreign exchange market is largely quiet as the market awaits fresh trading incentives and the FOMC statement later in the North American session. The main exception to the consolidative tone is the Australian dollar, which is posting its largest loss (~1.7%) in a couple of months.

The Dollar Fights Back

The US dollar starts what promises to be an eventful week giving back some the gains score in second half of last week against the euro and yen. Equity markets are extending their pre-weekend losses. Commodities are also trading with a heavier bias. Markets in Australia, New Zealand, and Italy are closed for national holidays.

Catching Up with Currencies and Commodities

It is not that the US dollar had a particularly good week. It was mixed. The best performers were sterling and the Canadian dollar. The pound led with a 1.6% gain, followed closely by the Canadian dollar.