The USD is on the back foot, with widespread selling over the past 24 hours. Of the majors, GBP rose the most against the USD, while the AUD rose the least.
Yesterday we mentioned an essay written by the Fed’s Williams where he suggested a change to central bank policy targets, including a possibility of raising the inflation target or adopting price level targeting.
The implication was that policy would need to be easier for longer. These comments worked their way through the market and as the day wore on, the USD got weaker and weaker across the board.
William’s view follows Bullard’s ‘one and done’ view on policy tightening espoused in June. With the Fed’s Jackson Hole symposium set down for next week the market convinced itself that the Fed would be talking about a possible new normal for central banking as the way forward. The natural conclusion reached was that less policy tightening from here would challenge the prevailing view that a stronger USD is likely over coming years.
Comments by the Fed’s Dudley and Lockhart overnight continued to flag the risk of Fed tightening in the not too distant future and they provided some boost to the USD but the damage had already been done.
Weaker than expected US core CPI data added to the USD’s woes, although industrial production was stronger than expected. The US TWI (major currency) is down a chunky 0.8% to reach its lowest level in eight weeks.
GBP was the biggest gainer, rising 1.2% to around 1.3040. A heap of UK inflation data were released and some were stronger than expected, dampening expectations for further BoE easing a little. Amidst the scramble to sell USD, USD/JPY fell as low as 99.54 but has since recovered to be 100.25. EUR went up through 1.13 and now sits at 1.1280.
The NZD climbed all the way up to 0.7305 at its peak, before Dudley’s comments sent it back down to 0.7230. The currency then rallied during the GDT auction, which ended up posting a significant 12.7% boost to average dairy prices, including a massive 18.9% gain in whole milk powder. A bumper result was expected, but expectations were still exceeded. The NZD now sits at 0.7280. Another unsuccessful attempt to push much beyond 0.73 will have got the attention of technical analysts and that level represents an area of strong resistance.
The AUD ‘only’ rose by 0.3% and currently sits at 0.77.
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1 Comments
So 8 years of loose and easy fiscal policy has failed to correct the USA economy so we need at least another two years of it. Remember the definition of insanity
“Insanity: doing the same thing over and over again and expecting different results.” - Albert Einstein
So are they insane or motivated by something other than the health of the economy. Who is benefiting from this policy. Follow the money.
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