The dollar rebounded yesterday and has continued through the overnight session as investors reacted to comments from Fed members. New York Federal Reserve President Dudley stated yesterday that he is optimistic that a rebound in growth in the US into Q2 will be seen, but that “it will be important to determine whether the softness in the March jobs market report was temporary, or if it foreshadows a more substantial slowing in the labour market…”
Dudley does not retain this optimism around the inflation picture in the US economy however, saying that he’s “not reasonably confident right now” that inflation will climb through the end of the year. My thoughts on a Federal Reserve interest rate rise remain that September is the earliest that we will see one, but upcoming upward pressure is likely on the USD as the data recovers from a poor Q1.
Tie my currency down sport
Noises from the Reserve Bank of Australia yesterday sent the AUD lower as Governor Stevens – while giving a speech in New York – told those assembled that he expects further falls in the value of the Australian dollar. The Reserve Bank of Australia cut rates to a record low in February of 2.25% and many viewed April’s decision to hold rates there as a surprise. Last week’s bumper jobs report further dissuaded traders that a rate cut was coming but those expectations have once again shifted. Markets are now pricing in a 64% chance that the RBA takes rates to 2% at its meeting on May 5th. As long as verbal intervention is working that seems to be the way that most central banks will choose to weaken their currencies; failing that rates will be cut.
You never see a thin bookie
Despite the blood, sweat and tears of the political campaign trail so far, opinion polls have remained remarkably solid. As with all predictions, there is the very real chance that they are wrong. Party advocates are quick to talk up the margin of error in these polls giving them as much as a 4% gain over their competitors. It’s a shame that when the polls have a consistent level for two or so months that it’s probably best to ignore any margin of error. With a lack of change in the polls and the support that Ed Miliband will gain from minority parties over Cameron, bookmakers are not changing their expectations to Miliband as the next Prime Minister.
Looking down the back of the Greek sofa
Time is running out for PM Tsipras and Finance Minister Varoufakis. With no progression on an agreement between it and its creditors in recent weeks and the upcoming repayment of the IMF large on the horizon, the government decreed yesterday that local governments should move any and all funds that they may have to the Greek central bank. Like one may scrabble cash together to cover a couple of hefty direct debits, Greece is panicking. Insurance markets put the likelihood of a Greek default within the next five years at around 81%, up from about 60% six weeks ago. Euro has been dragged lower on this development and I am looking for pressure to remain on the single currency through the summer months as this all comes to a head.
The day ahead
The highlight of today’s markets will be the German ZEW reading, a survey of how optimistic financial analysts are on the German economy. Since an 18 month nadir in October of last year, the index has rebounded well as optimism around German output has increased, with deflation driving consumer spending higher and a weaker EUR helping exporters; we expect a similar move today.
