The US dollar and yen are the two weakest currencies of the majors, with GBP the best performer.
US rates have risen as inflation expectations rise and the probability of another Fed hike this year increases, but that sentiment is not currently being reflected in USD strength.
On a TWI basis, the USD is down about 0.3% and hovers close to its lowest level since June.
The lack of USD response to higher Treasury rates likely reflects the fact that interest rates in the UK and across Europe, for example, have also been increasing.
GBP remains well bid. After blasting through 1.44 at the end of last week and 1.45 yesterday, overnight it broke through 1.46 before retracing a little to 1.4580. Traders have been net short GBP as Brexit fears rose, but current polling and sentiment suggests that those fears might have been overdone and the currency is now on a reverse course. Over the last week, NZD/GBP has swiftly fallen from close to 0.49 to 0.4720 this morning. We feared a push up through 0.50 if Brexit risks intensified, but that is now looking less likely by the day.
There has been some mild spillover into EUR, with a gain of 0.2% to just under 1.13, but that more likely reflects general USD weakness.
Yesterday, the Nikkei newspaper reported that Japan’s $1.3 trillion Government Pension Investment Fund would start hedging to protect its foreign assets against an appreciating yen. This saw USD/JPY fall to as low as 110.67, but that move has been fully retraced and the yen has weakened again to trade at 111.30.
The NZD is 0.5% higher at 0.6885, with all of that gain occurring during local trading hours. The currency has whipped around a bit overnight, but hasn’t changed much since 5pm yesterday. Trading should be light ahead of tomorrow morning’s double header with the FOMC and RBNZ statements out within a few hours of each other. The combination of a slightly more hawkish Fed and an RBNZ easing would help take the NZD below 0.68, but Wheeler is the wildcard.
The NZD/AUD’s move from 0.8880 to 0.8930 in local trading yesterday unwound overnight and the cross currently sits broadly unchanged at 0.8890.
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1 Comments
US rates have risen as inflation expectations rise and the probability of another Fed hike this year increases, but that sentiment is not currently being reflected in USD strength.
Certainly not.
That interpretation is consistent with other survey-based estimates including a trio of polls conducted by Gallup. Their US Economic Confidence Index dropped to -16 in the latest week (thru April 24), the lowest reading of 2016. Both the current conditions component and economic outlook piece dropped, though the decline was far more pronounced for future expectations. According to the survey, only 35% said the economy is getting better while an alarming 60% are saying it is getting worse. Read more
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