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A Sea of Red
Currency markets felt the force once again of a strong dollar yesterday as cable and eurodollar sustained further losses in yesterday’s price action. Over the past month, we have seen cable lose more than 6% on the dollar and the eurodollar lose more than 4% against the greenback. If your next question is why, here’s a possible reason. As investors have begun weighing the opportunity cost of holding risk assets as the Fed reduces its balance sheet, the obvious move has led to a sell-off in equities moving positions over into cash. As investors move into cash positions this creates a higher demand for the dollar to strengthen against major G-7 currency pairs. Besides a shift in risk analysts and investors pricing in an aggressive Fed monetary policy plan for the rest of the year puts the dollar in a prime position against other counterparties. Lastly, over the past week, corporate earnings in the U.S have been released coming in lower than expected adding to the pressure that markets are feeling. Looking ahead today we have a speech from ECB President Lagarde and U.S data later this afternoon. A mute week ahead once as aforementioned but still a week where rates can continue to get underpinned by the dollar.
Joe Olashugba
Apr 27, 2022 · 2 min read
Market Rebound
Markets opened relatively quietly with U.S equities selling off within the early hours of the U.S session. Rising fears surrounding China’s COVID-19 cases set off the continued sell-off in equities with the cases sprouting fears of further lockdown measures affecting global supply chains. After confirmation of Elon Musk buying Twitter U.S equities brushed off fears and pushed all major indices into the green. However, this sudden reversal is seen as only temporary relief to the markets, as major macro indicators point toward an underperforming equity market as the Fed continue to tighten financial conditions and growth forecasts lower. Dollar surge, cable and euro lower As the dollar edged higher yesterday rates on the euro and pound continued to disappoint, stretching both pairs into negative territory. The euro is down to 2020 year lows with cable also at levels not seen since September ‘20. Despite Macron’s successful election win the euro failed to hold steady as the growth outlook continued to paint a worrying picture. With a quiet week of economic data ahead we turn towards the month of May to give us further direction on currency movement. Global growth worries Commodities closed the day lower as forecasts of global growth continued to pin down commodities such as copper and oil which are great indicators of global consumption levels. As fears surrounding China's lockdown and a global slowdown in economic output rise such commodities will be the first to indicate this in their prices.
Joe Olashugba
Apr 26, 2022 · 2 min read
Market Open: Central Bank Policy
Last week’s antics Last week’s economic releases were fairly quiet up until Thursday when we heard from all three major central banks (the Fed, BoE & ECB) speaking all within the space of 30 minutes. Fed’s Powell confirmed a hawkish outlook for the U.S saying “it is appropriate to be moving more quickly” in relation to their monetary policy stance. BoE's Bailey shut down any rumours of a balance sheet run-off stating that the central bank would only initiate quantitative tightening in calm markets and would stop if conditions changed. Over in Europe President Lagarde reaffirmed the importance of the June meeting for the central bank, as that could also be the end of their asset purchase program. Off the back of negative retail sales combined with an already weakening pound, rates on Friday fell over 1.5% to 1.28300, levels not seen since 2020. The BoE is expected to raise its interest rates, but with consumer confidence hanging low, an income squeeze amidst low growth it is hard to see any soft landing for the economy. Euro outlook Against the pound, the euro managed to slip below 1.1900 whilst holding onto the 1.07800 handle against the dollar. The deciding factor on where euro rates will lead is still gripped by Russia-Ukraine but more importantly how the ECB will react to the policy differential widening as both the BoE and Fed ramp-up rates. This week Leading up to the close of April, the only thing on the calendar that presents volatility is the CPI print for the Eurozone in April, apart from that the real heavyweight action starts from May.
Joe Olashugba
Apr 25, 2022 · 2 min read
Markets flee risk assets
Powell sights his eyes on a 50bps rate hike Yesterday Jerome Powell confirmed exactly what traders have been betting on for weeks, although slightly dovish compared to the 75bps hike expectation; he confirmed that a “50bps hike will be on the table for the May meeting”. This sent the DXY above the 100.00 mark once again and sent its counterpart G7 currencies lower with the eurodollar well below the 1.08500 level and cable back below 1.30500. The markets are pricing in two 50bps hikes in both May and June with possibilities of a 75bps July hike if need be. Powell’s comments sent U.S equities lower after seeing gains earlier in the day. ECB Inflation print release Inflation in the Eurozone came in lower than expected at 7.4% vs 7.5% YoY for March with core lower as well at 2.9% vs 3.0%. President Lagarde spoke yesterday mentioning that the June ECB meeting will be “key” for the end of their asset purchase program and potentially the beginning of their rate hikes. This however failed to have any effect on euro rates across the board. Negative Retail sales in the UK A negative print for retail sales in the UK pushed the pound lower as the squeeze in income felt by citizens caused a hesitation to open their wallets. As energy prices, food prices and other essential living costs increase for the UK citizen; a cut back in retail is expected as consumers now will only look to purchase consumer staple products.
Joe Olashugba
Apr 22, 2022 · 2 min read
Dollar tightening, dollar strength
FOMC member James Bullard, a well-known hawk, opened the floor to a 75bps hike as the market rallied on expectations of further hawkish reaction by the Fed in their upcoming meetings. The dollar has gained against other G-10 currencies pushing the euro and pound to new lows once again. This week doesn’t present market-moving data, however, ECB’s inflation print presents a channel for risk and volatility to flow through. As the policy differential between the Fed and both the ECB & BoE widens this creates further problems for the eurodollar and cable respectively. Bets still lean toward a hawkish BoE in the upcoming meetings but the aggression is what remains in question as Andrew Bailey faces the possibility of double-digit inflation this year.
Joe Olashugba
Apr 20, 2022 · 1 min read