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Submitted by Nomura's Bilal Hafeez This time last week, the market had started to price a chance of Fed cut in 2019. A week later that has been priced out and rates markets have returned to pricing a (small) chance of a hike (see first chart). Despite that, the dollar has fallen with the euro rallying to its highest level in almost three months. Part of the reason for this is that global growth expectations have also risen which can be seen by Euro-area and Chinese stocks outperforming US stocks and the bounce in commodity markets. This has helped rest of the world currencies against the dollar. A bigger reason, perhaps, is that the dollar has been too strong relative to interest rates for a while now, whether one looks at US yields alone (first chart) or rate differentials (see second chart). Moreover, focusing on poor (lagged) Euro-area data has proven to be a mistake. The euro ignored the plunge in November German industrial production released on Tuesday morning, and it was already falling before today’s poor French IP number. Rather, US news, notably speeches by Fed officials and FOMC minutes, have been the critical triggers for dollar moves (see third chart).