It is easy to be cynical about newfound USD bullish sentiment, where suddenly yields and rates matter for currencies. However, rates and yields have more often played a dominant role in currency markets. Now that the equity market has become more volatile and confidence in the global economy has ebbed, we may see the USD […]
The US economy has retained strong momentum, generally beating expectations, while the Eurozone economy has lost momentum and has consistently underwhelmed expectations over recent months. The ECB said it has been monitoring strength in the EUR since January. The evidence suggests that indeed EUR strength has contributed to weaker growth and is a problem for […]
We see the recent resurgence in US yields as potentially the most important driver in the coming week or longer. The resumption of the rise in US yields in the last week appears related to a more persistent underlying trend. It has been supported by a rise in commodity prices, but occurred despite weaker confidence […]
AUD/NZD has fallen back to 1.05 for the first time since July last year; do fundamentals justify this? Will it last? Below is our tour de force analysis of the pair covering rates, commodities, underlying fundamentals and exposure to China. The pair has fallen well below what might be justified by interest rate spreads. However, […]
What does the widening in USD and AUD LIBOR/OIS spreads and higher cross-currency swap basis mean for their exchange rates? Some have argued that the implied tightening in financial conditions in their home countries may delay central bank rate hikes and undermine their exchange rates. But this seems to ignore the fact that the spread […]
In the next week or so, key US inflation data are released; wages data on Friday (6 Apr), PPI on the following Tuesday (10 Apr), and CPI on the following Wednesday (11 Apr). FOMC minutes are also released on 11 April. These data have sent mixed messages so far this year and contributed to the […]
Just when you think you have a bead on the likely direction in FX markets, you would be advised to sit, wait and consider taking the opposite view. There have been a number of swings in the last month that have reversed and put the market back into the preceding range. Issues the market is […]
FOMC raised GDP forecasts for 2018 from 2.5 to 2.7; for 2019 from 2.1% to 2.4%. However, it left the 2020 GDP forecast at 2.0%, and the long run potential rate at 1.8%. It lowered unemployment rate forecasts across the profile from 2018 to 2020. From 3.9 t0 3.8% in 2018, from 3.9 to 3.6% […]
The USD has managed to shake-off increased political risk, although this remains a threat. The prospect of a more upbeat FOMC may be supporting the USD. The market is looking for some upward revision to the dot-plot. Eurozone confidence and inflation expectations have eased. EUR yield spreads deteriorate to new lows. AUD may have been […]
Political risk in the US is elevated and likely to rise further as the market contemplates the possibility of Democrats taking control of one or both houses of Congress in the mid-term elections. The close outcome of the special election in Pennsylvania on Tuesday points to Democratic momentum. US political risk over the last year […]