Category: Economic Conditions

A Dollar Save by the ECB and PBOC

The combination of the dovish signals from the European Central Bank and the rate cut by the People’s Bank of China lifted the US dollar just as it was threatening to fall through the lower end of its recent ranges.  Judging from the positioning in the futures market, short-term speculators appeared to be abandoning the dollar bull camp, perhaps driven the disappointment with the Federal Reserve’s seemingly inability to move away from the zero-bound six years into an economic recovery that has driven the unemployment rate to 5.1%.

Investor Focus Moves Overseas and Away from the Fed for Now

From the Federal Reserve’s reluctance to raise interest rates in September, through the soft employment and retail sales report, and two Fed Governors arguing against a rate hike this year, the pendulum of expectations has swung hard.  The implied yield of the Fed funds futures does not rise above 37.5 bp, ostensibly the middle of the target range following a rate hike, until July 2016.  Barring a contraction in the US economy or deflation in core measures of inflation, it is difficult to envision a shift out in expectations.

Consumer Confidence and NY Fed President Dudley Lend Dollar Support

The US dollar turned in a mixed performance last week.  It recovered in the second half of the week against the euro and yen.  It was an unusual week in that the New Zealand dollar was the strongest of the major currencies, gaining 1.8% against the US dollar, while the Australian dollar was the weakest, losing almost 1% against the greenback. 

Can the Fed Help the U.S. Side-step a Worldwide Economic Malaise?

Markets and economists have long been obsessed with the Fed’s first interest rate hike in nine years, but it seems the factors are not reciprocating positively to what the Fed is looking for. Reports on labor and emerging economies coupled with low inflation, strong dollar and falling commodity prices suggest that the US economy may not be as sound as expected.

Reaction to the jobs report

Where are the Dollar Bulls Going?

I remain a dollar bull on a medium and longer-term basis, but recognize that stale longs are bailing, and there is an establishment of new momentum shorts. 

Moving On…the Counter-Trend End

Yesterday’s mostly counter-trend moves ended abruptly.  A second governor of the Federal Reserve voiced opposition to the intimation by Yellen and Fischer, and several regional presidents that a rate hike is still appropriate this year.  This helped renew the downside pressure on the dollar.  It is lower against all the majors and most emerging market currencies today.

Are Recent Global Market Trends Reversing?

The recent trends in the global capital markets are reversing today.  Although the price action yesterday warned of the risk, there have been five fundamental developments that are contributing to the price action today. 

The first development was China’s September trade figures.  The balance was little changed at $60.34 bln 9$60.24 bln in August).  The consensus had forecast a fall toward $48.2 bln.  Less weak exports and considerable weaker imports drove the larger than expected surplus. 

Central Bank Speak is Acting as a Dollar Driver

Amid light news, the downward pressure on the US dollar has continued against the majors but emerging market currencies are a mixed picture.  The key driver is the spate of comments from the Fed’s Fischer, the ECB’s Draghi, and BOJ’s Kuroda. 

Fischer indicated that he agreed with the majority that a Fed hike this year might still be appropriate.  However, he tempered his remarks by the caveat that it was an expectation, not a commitment.

The Markets’ Many Moving Parts are Not All Moving Together

There is a sense that the markets are at crossroads.  Many suspect, there has been a trend change.   The reason for many to buy the dollar was the Fed was going to raise interest rates.  Lift-off may not be simply postponed until December, as was the decision to begin tapering, but a growing number of participants do not see it until March. 

The U.S. Dollar Bias is Lower While European Economic Data Points in Different Directions

The US dollar is on its back foot. It was already sporting a softer bias and the FOMC minutes had a dovish twist.  A Wall Street Journal poll found 64% of economists expect a hike in December, and while the minutes might not substantively change that, the confidence is weak.