Tag Archives: FX Trends

The US dollar’s downtrend is extending.  The euro traded above $1.16 for the first time since last August. With Japanese markets closed for the second half of the Golden Week holidays, perhaps participants felt less hampered by the risk of intervention and pushed the dollar to almost JPY105.50.  Despite an unexpectedly large fall in the UK’s manufacturing PMI (49.2 from 50.7), sterling has pushed to its highest level in four months (~$1.4770). The Australian dollar is the main exception. ...

This post is extremely important for understanding the differences between CPI inflation in Europe and in the U.S. “Shelter” makes up 32.8% of the U.S. CPI basket, or 42% of the core inflation rate. It is mostly driven by “Owner’s equivalent rent of primary residence”. Shelter inflation in the U.S. is 3.2% per year (March 2016), but shelter inflation is only 1% in Europe. CPI in the United States (source) in % Shelter 32.776    Rent of primary residence 5.930   Lodging away from home...

Yesterday, China announced one of the most important tax reforms of the past twenty years.  It is replacing a business tax on gross revenue for non-manufacturing companies with a VAT.   Manufacturing companies have been subject to a VAT approach for a few years.  The reform extends it from manufacturing and a few services in a pilot program to industry-wide application. It will now cover construction, real estate, finance and consumer services. The shift to the VAT is expected to reduce...

EM ended the week on a firm note, which should carry over into this week.  The biggest near-term risk to EM is the US jobs data on Friday, as the weekly claims data points to another strong gain.  Otherwise, the global liquidity backdrop remains EM-supportive. Thailand reported April CPI earlier today.  It rose 0.07% year-over-year.  The market expected another decline after the  -0.5% in March.  This is well below the 1-4% target range.  However, growth remains quite robust, averaging...

In quiet turnover, with China, Hong Kong, Singapore and London markets closed, the US dollar is trading with a heavier bias against all the major currencies.  Lower commodity prices, including oil and copper, appears to be taking a toll on some emerging market currencies, including the South African rand. Japanese markets were closed last Friday and will be closed the next three sessions.  The yen appreciated nearly 5% in the aftermath of the FOMC/BOJ meetings last week.  The greenback’s...

The die is cast.  The Federal Reserve is on an extended pause after the rate hike last December. The market remains convinced that the risk of a June hike are negligible (~ less than 12% chance).   The ECB has yet to implement the TLTRO and corporate bond purchase initiatives that were announced in March.  The impact of its programs have to be monitored before being evaluated.   It is unreasonable to expect any new initiative in the coming months.   The Bank of Japan did not take...

Speculators in the futures market made mostly small position adjustments in the sessions leading up to the FOMC and BOJ meetings.   During the Commitment of Traders reporting week ending April 26, the largest adjustment of speculative position in the currency futures was the 12.5 k build of gross long Australian dollar contracts. The accumulation lifted the gross position to 110.0k contracts, which surpasses the speculative gross long euro position (99.1k contracts) and the speculative...

April was a cruel month for the US dollar.  It fell against all the major currencies; even those whose central banks have negative yields.  The greenback also fell against nearly all the emerging market currencies, but the Philippine peso and the Polish zloty.   Through the first four months of the year, the dollar is lower against all the major currencies save sterling, which is off about 0.6%.  Following the reluctance of the BOJ to ease policy further last week, the yen has moved back...

The White Queen in Alice in Wonderland (Through the Looking Glass) confesses that when she was younger, she could believe six impossible things before breakfast.  She encourages Alice to do the same.    It appears many in the market are taking the Queen's advice too seriously.   Here is a quick thumbnail sketch of seven of our non-consensus views:   1.  There is not a currency war.  There is a type of arms control agreement in place.   There have been plenty of opportunities for the ECB,...

There are two main forces in the foreign exchange market that are rippling through the capital markets.  The first is the continued weaker dollar tone.  The combination of what appears to be a stagnating US economy (0.5% annualized pace in Q1) and a market that does not believe the Federal Reserve will hike rates in June, and is in fact, judging from the Fed Fund futures strip, skeptical of a single hike this year.   The effect of this US dollar weakness help the commodities and emerging...