Dollar reversal on Fed expectations

20 August, 2015

The release of FOMC minutes to the end of July meeting brought more uncertainty with regards to the timing of the next increase in rates. This can be seen in the reaction of the dollar, down 0.4% on the back of the release. The minutes themselves were expressing caution with regards to the inflation outlook, but were naturally more bullish on the labour market. Herein lies the dilemma for the Fed, whether to look at inflation and expectations thereof, or the labour market. Both form the legs of their dual mandate to achieve maximum employment and stable prices (together with moderate long-term interest rates). In terms of market pricing for a move, we are back to where we were around 3 weeks ago, with short-term interest rate markets suggesting that on balance rats are likely to remain on hold.

This complicates the outlook for FX, with bigger picture strategies playing on policy divergence once again struggling. The Aussie finds itself weaker overnight on the continued fragility seen in China. For the most part, Australia has shown a certain degree of resilience to developments in China, but the link has not been fully broken by any means. Elsewhere, emerging markets continue to be under pressure. Earlier this week it was the South African rand under pressure, with the Turkish Lira taking it on the chin, having weakened against the dollar for the past 5 sessions and touching the 3.00 level on USDTRY. Looking at a broad basket of emerging market currencies, they have now unwound the rally seen in the wake of the Fed minutes last night and are now lower that levels prevailing before the release. This reflects the fact that it’s not just about the Fed, there are plenty of country specific factors weighing. Focus today is on the UK retail sales today, together with US weekly claims and existing home sales data.


Source link  
Markets recover after the drop

The markets decline on investors' fears that trade conflicts will drag on and slow down demand, and this dynamic coincided with breaking through important...

Markets pressured by Huawei problem

Alphabet and some other American IT companies have suspended business with Huawei, which is one of the first examples of major consequences for...

The climate is changing rapidly

British people need to fly less, drive electric cars, eat little meat and turn their home thermostats down to 19 degrees Celsius (66 Fahrenheit) in order to rein...


Chinese stocks saw their worst week

Chinese stocks have taken investors on a ride this year. Shanghai and Shenzhen have been the best performing global markets this year, with the Shanghai...

Risk-sensitive currencies on the rise

Stock markets show growth after the release of strong data for China and Japan as their respective PMIs were better than expected which supported...

Trump again puts pressure on OPEC

President Donald Trump told OPEC on Thursday that its members should start pumping more oil, marking his second warning to the producer group this year...


Turkish lira fell by 5% before elections

The Turkish lira dropped by as much as 5 percent against the dollar on Thursday morning, as the country gears up for elections this weekend. The greenback...

May won't ask for a long Brexit delay

Prime Minister Theresa May won't ask the European Union for a 'long' delay to the Brexit deadline, her office said, after pro-Brexit ministers objected...

Demand for safe assets grows

Markets remain under moderate pressure, despite the Fed comments. Powell's semi-annual speech in Congress reinforced expectations that the US Central Bank...

  


Share it on:   or