It takes more than a shaky presidential presser to keep the dollar down
The dollar’s retreat entered its second day yesterday, with GBP/USD and EUR/USD both recovering from recent lows. Nonetheless, the greenback staged a relatively impressive rally in the latter half of yesterday’s session, signalling that the dollar’s strength is far from over in the short term, which continued overnight and is keeping the pound and the euro under pressure this morning.
Fed policy mix could be set to change
There have been a few Fed speakers this week, most recently the chair Janet Yellen yesterday, who’ve remained upbeat and positive on the US economy, indicating that further tightening is already being eyed by some among the rate-setting committee. The form of this tightening, however, could be a different story. Fed members have expressed their desire to trim its outsized balance sheet – so called ‘quantitative tightening’.
Should this go ahead, the effect on the dollar would be similar to a rate hike: money market interest rates would rise, lifting the dollar along with it. Nonetheless, it’s clear that central banks are the sheep in today’s markets and will be forced to the follow the lead of a blonde-haired, orange-skinned shepherd when he takes office in one week’s time.
May to shed some light on Brexit next week
Here in the UK, it looks to be a quiet end to the week, with the pound looking ahead to next Tuesday, where PM May is set to offer further details on her government’s plan to depart from the EU. At present, all we know is that we’re leaving and the process will begin in just over two months. Markets are starved for details on what the shape and structure of the UK’s relationship with the EU will look like and what demands, concessions and compromises will be made in the coming exit period. We could finally be getting an insight next week.
Turkey attempts to reverse recent misfortune
In somewhat of a break from recent trends, the Turkish lira added close to 3% against the dollar as the Turkish central bank outlined measures that would force banks to borrow at higher interest rates, an effective monetary tightening. Unfortunately for the Turkish PM Erdogan (who, again, referred to currency traders as terrorists this week) that 3% has done little to put the lira back onto the front foot, and the market will have to see firmer policy steps put in place before the exchange rate shrugs off what is one of the poorest track records globally.
The Day Ahead
Today’s calendar is very US-centric with producer prices hitting the tape at 1330GMT, followed by the Michigan consumer sentiment survey, both of which are unlikely to turn the tide of a market that’s so focused on the White House.