Summary: It is easy for commodity currencies to advance strongly when only the inflationary component of stagflation is in play, but what happens across FX if risk sentiment starts to consider the outlook for sharply weaker growth, especially if yields rise further? Key tests lie ahead on that account for the most yield-sensitive currency the Japanese yen, as...
Summary: The contrarian in me is making a bit of a fuss as recent market developments like JPY weakness and commodity currency strength look extremely extended for at least the short term. This week looks short on macro catalysts, but US yields pressing back higher could add some fresh energy and a pushback against the sharp relief rally in risk sentiment last...
Summary: Risk sentiment remains on edge as markets hold their breath on the next moves from China as it returns from holiday at the end of this week, as it waits for the resolution of the US debt ceiling issue, and as it waits for the US jobs report on Friday, with wages an increasing focus on whether a good old-fashioned wage-price spiral threatens.
FX...
Summary: Yesterday saw a big US dollar move higher as key support gave way in EURUSD and other currencies likewise came under pressure against the big US dollar. This time, the move was its own phenomenon, not requiring sympathetic weakness in risk sentiment or higher yields. The timing is worth noting as today is the last day of Q3 and end-of-quarter effects may...
Summary: Market sentiment has finally reached a breaking point on the pressure that had been building for weeks in energy prices and for less than a week in yields, with US Treasury yields taking out key levels all along the curve. In response the US dollar has strengthened more broadly, not just in USDJPY, while risk-sensitive currencies like NZD and SEK have...
Summary: The German election offered no decisive outcome and we are now faced with the prospect of an extensive period of building a ruling coalition and a likely garbled policy mandate. Elsewhere, the issue that will increasingly seize market attention this week is the recent rise in US yields and how close the US Congress is willing to dance at the edge of a...
Summary: The market tried to slip back into full risk-on mode yesterday, but a huge rise in US treasury yields and sympathetic moves elsewhere at the long end of the curve reminds us how quickly the yield question can steal the spotlight when they are on the move. Next week looks very important for follow up moves in the wake of that particularly development and...
Summary: Fed Chair Powell managed to surprise the market somewhat during the press conference with clear guidance on an imminent start to QE tapering, but the market reaction was fairly muted, with the action overnight and in the European session today suggesting the Evergrande story is still the hobby horse of market attention at the moment. Elsewhere, the Bank...
Summary: With expectations virtually nil for strong signals from the Fed at the FOMC meeting tonight, the meeting could well surprise expectations, which have perhaps shifted slightly to the hawkish side on the potential for the Fed to move sooner rather than later on the taper. But the next steps from the Fed are likely far less important than other irons this...
Summary: Yesterday saw the USD moving sharply higher and sustaining an intraday move for the first time in a while. A stronger than expected US Retail Sales report seemed to show how touchy the lowest yielding CHF and JPY are to anything that prompts a sharp move in US treasury yields. Next week is chock full of central bank meetings, highlighted by the FOMC...
Summary: The Swedish krona initially jumped yesterday on a very hot August inflation print from Sweden, but backtracked after the weaker than expected US CPI data. This morning, sterling has entirely ignored the highest UK inflation readings in nine years, a sign that the market is unwilling to react consistently to relative inflation data when risk sentiment...
Summary: EURUSD remains near the top of the range, possibly on the anticipation that the ECB is set to beat the Fed to the announcement of an asset purchase taper. Meanwhile, long US treasury yields are nearing an important trigger level that could trigger more volatility than we have seen in some time in currencies, while the RBA tapered after all, but provided...
Summary: EU sovereign yields got a big boost yesterday from a higher than expected EU inflation print, but also on a couple of known hawks arguing for a reduction of stimulus. But the fact that EU yields have moved at all, especially relative to the moribund activity in US yields, has helped bring the euro some fundamental support. Still, some further wood to...
Summary: Fed Chair Powell delivered as dovish a speech as anyone could have expected at the Jackson Hole symposium on Friday, taking the US dollar lower with the outlining of his thorough conviction that the recent bout of high inflation will prove transitory. The reaction to the speech was sharp, if still quite modest as we now watch for any follow-on reaction...
Summary: Risk sentiment tried to stage a recovery yesterday, but the US dollar never really blinked, and the Japanese yen and Swiss franc are gunning for broad gains again as well, as FX appears to have become a driver of weak sentiment elsewhere now, and less of an observer. The latest currencies to join the risk-off pattern across FX include the Scandies and...
Summary: While the USD coils around near the top of the range, we have seen a significant acceleration in the JPY rally on the recent drop in global bond yields, while the New Zealand dollar has suffered a sudden retreat after its recent rally on a single Covid case triggering a nationwide lockdown and casting sudden doubt on the RBNZ decision at the meeting in...
Summary: The US dollar is on its back foot after a weaker than expected GDP number yesterday, while currencies have largely ignored a new stumble in risk sentiment since late yesterday. Later today we get the PCE inflation data, the preferred inflation measure of the US Fed and Fed speaker Bullard, with the US data calendar a busy one next week, together with an...
Summary: The market may be too complacent on the FOMC meeting tonight as Powell and company may be set to signal a desire to bring forward the tapering of QE purchases. This could very well catch a complacent market by surprise and boost the US dollar on a renewed bout of volatility. Elsewhere, the Chinese renminbi weakened past a key technical level versus the...
