feedback
Simon Smith

Groundhog Year?

The Fed statement gave the briefest of lifts to the dollar, but this proved to be short-lived. The statement had the near-term risks to the outlook as being diminished and one member voting for higher rates (George). There has been some talk of a rate hike as early as September, but the market is not yet pricing that in, with only around a 25% probability of a hike in the September meeting. Still, we will have to watch the data and rhetoric carefully in the run up. The Fed has been caught out ...

Simon Smith

The yen rollercoaster

Today will be about waiting for the Federal Reserve decision this evening. Of course, there is no tangible chance of a change in rates, so the focus will be on the shifts in the statement and on their assessment on the outlook for policy. The last meeting saw the uncertainty surrounding the UK’s Brexit vote holding the Fed back. That’s now passed, even if the result was not as expected, so the focus is back on the domestic economy and whilst the latest data showed headline employment ...

Simon Smith

Winding down

The single currency has fallen out of the limelight, largely because there have been more dominant themes driving most of the other majors currencies in recent weeks. It’s also notable that it’s been moving away from having interest rate as the primary driver. The one month rolling correlation between EURUSD and the 2Y interest rate spread between the US and Eurozone has moved into negative territory for the first time since early 2015. Normally the positive correlation corresponds to the euro ...

Simon Smith

Reasons to be cheerful

The overall mood in markets at the start of the week appears to be pretty positive. Equities are again close to new highs in the US, whilst bond yields have backed up from the recent lows. The message appears to be that things aren’t as bad as perhaps everyone feared. This is also seen beyond the US, with broader share indices also at new highs for the year and bond yields moving tentatively up from the lows seen earlier this month. Despite this, the data in the run up to the Bank of England ...

Simon Smith

ECB increasingly trapped

Being the head of the ECB is not an enviable task at this present moment in time and this will probably be all too apparent at today’s meeting of the ECB Governing Council. There are no solid expectations for a chance in policy, with the impact of the measure announced back in March still being monitored and assessed. On top of this though, there is the issue of how Brexit will potentially affect the Eurozone economy over the coming months and years. On top of this, there is the issue of QE, ...

Simon Smith

The dollar moving ahead

The creeping dollar strength I talked about yesterday had continued, closing above the 24th June high on the dollar index. Over the past two sessions, it’s against sterling, the Aussie and the kiwi against which the dollar has appreciated the most. Whilst all those currencies have had their own reasons for weakening, there has also been a run of better data on the US side which has supported some of the rally. Yesterday it was housing starts and building permits data that came out stronger than ...

Simon Smith

Creeping dollar strength

It’s not at a pace you can necessarily see, but the dollar is slowly gaining ground, not so much on reasons to be bullish about the dollar, more that investors appear more bearish about other currencies. Sterling is reversing, putting more weight behind the view that the recover above the 1.30 level on cable was more a correction in a broader down-trend. The recent move in relative 2 year yields between the US and UK also suggest further downside ahead, with the 2Y spread at further cyclical ...

Simon Smith

Discounting political risk

The events in Turkey late Friday and over the weekend have been the main influence on markets so far, with the Turkish lira recovering more than half of the losses seen late Friday as the dust settles from the attempted coup. Naturally, there are going to be more far reaching consequences for Turkey, both domestically and beyond, with the latter likely to be top of the agenda at the meeting of EU foreign ministers today. The other major news is the proposed deal between Softbank and ARM ...

Simon Smith

Sterling reversing

A sombre end to the week as we digest the news of the attack in Nice. Stocks are opening broadly steady, whilst the yen has strengthened modestly into the European session. Looking elsewhere, we’ve sterling reverse nearly all of the gain against the USD seen in the wake of the MPC decision to keep interest rates unchanged yesterday. This is not wholly surprising, given that we saw a decent amount of short-covering in the wake of the announcement, together with a fairly strong expectation that ...