dollar rebound

FX Daily: Waiting on central bankers to shake data-resistant markets

Investors have cemented Fed easing expectations despite some hotter-than-expected US data. We suspect a market reluctant to price out rate cuts will need strong words from the Fed – perhaps Powell himself – to reconnect rate expectations with data. Meanwhile, USD may stay rangebound. This week, Lagarde will speak in Davos, and UK CPI should slow further.

 

USD: Rate expectations still disjointed from data

The first half of January has shown a dislocation between rate expectations and data in the US. The two most important data points for the Federal Reserve, labour and CPI inflation figures, both came in hotter than expected. PPI was a bit softer than consensus on Friday, but that is not enough to justify markets’ reluctance to price out Fed easing. The Fed funds future curve prices in 21bp of cuts in March, and 168bp by year-end.

Our view remains that the Fed won’t start cutting before May, and that the

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US Dollar Rises as Bond Market Ignites: A Look at Dollar's Resurgence

ING Economics ING Economics 10.11.2023 10:03
FX Daily: Bond bears give new energy to the dollar A very soft 30-year Treasury auction and hawkish comments by Powell triggered a rebound in US yields and the dollar yesterday. Dynamics in the rates market will remain key while awaiting market-moving US data. In the UK, growth numbers in line with expectations, while in Norway, inflation surprised to the upside. USD: Auction and Powell trigger dollar rebound The dollar chased the spike in US yields yesterday following a big tailing in the 30-year Treasury auction and hawkish comments by Fed Chair Jerome Powell. Speaking at the IMF conference, Powell warned against reading too much into the softer inflation figures and cautioned that the inflation battle remains long, with another hike still possible. If we look at the Fed Funds future curve, it is clear that markets remain highly doubtful another hike will be delivered at all, but Powell’s remarks probably represent the culmination of a pushback against the recent dovish repricing. Remember that in last week’s FOMC announcement, the admission that financial conditions had tightened came with the caveat that the impact on the economy and inflation would have depended on how long rates would have been kept elevated. The hawkish rhetoric pushed by Powell suggests that the Fed still prefers higher Treasury yields doing the tightening rather than hiking again, and that is exactly what markets are interpreting. The soft auction for long-dated Treasuries also signals the post-NFP correction in rates may well have been overdone and could set a new floor for yields unless data point to a worsening US outlook. Today’s highlights in the US calendar are the University of Michigan surveys. Particular focus will be on the 1-year inflation gauge, which is expected to fall from 4.2% to 4.0%. On the Fed side, we’ll hear from Lorie Logan, Raphael Bostic and Mary Daly. Dynamics across the US yield curve will have a big say in whether the dollar can hold on to its new gains. Anyway, we had called for a recovery in DXY to 106.00 as the Fed would have likely pushed back against the dovish repricing. The rebound in yields should put a floor under the dollar, but we suspect some reassurances from the data side will be needed for another big jump in the greenback.
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FX Daily: Navigating Central Bank Winds in Year-End Markets

ING Economics ING Economics 18.12.2023 13:49
FX Daily: One last big central bank meeting The dollar is recovering some ground after the pushback from Fed officials against rate cut bets. However, the dovish Dot Plot may work as an anchor for rates and keep the dollar soft into the end of December. In Japan, the BoJ announces its policy in the early hours of tomorrow, and that will direct market expectations about a January hike.   USD: Softer into year-end? The last few days of market action, before volumes dry up for Christmas, should continue to revolve around the “tug of war” between Fed officials trying to temper rate cut speculation and investors who have instead seen a validation of dovish bets from last week’s Dot Plot projections. Data can tip the scale in these situations, so consumer confidence, personal spending, and PCE figures should move the market this week. We don’t expect the last bits of US data in 2023 to paint a very different picture, though. Ultimately, the Dot Plot surprise should keep providing an anchor for rates into the new year and prevent a major dollar rebound in a period that is also seasonally unfavourable for the greenback. It will, however, be important to see how much louder the post-meeting pushback against rate cut bets by Fed officials will be. We’ll hear from Chicago Fed President Austan Goolsbee today and Raphael Bostic tomorrow, but with Christmas getting closer, there will obviously be fewer chances to collect FOMC members’ remarks. Today, the US calendar is otherwise quiet, and the FX market will primarily focus on the Bank of Japan announcement overnight (more in the JPY section). We expect DXY to stabilise around 102/103 into year-end, but risks are skewed to the downside.
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FX Weekly Update: Anticipating Central Bankers' Impact on Resilient Markets

ING Economics ING Economics 16.01.2024 12:19
FX Daily: Waiting on central bankers to shake data-resistant markets Investors have cemented Fed easing expectations despite some hotter-than-expected US data. We suspect a market reluctant to price out rate cuts will need strong words from the Fed – perhaps Powell himself – to reconnect rate expectations with data. Meanwhile, USD may stay rangebound. This week, Lagarde will speak in Davos, and UK CPI should slow further.   USD: Rate expectations still disjointed from data The first half of January has shown a dislocation between rate expectations and data in the US. The two most important data points for the Federal Reserve, labour and CPI inflation figures, both came in hotter than expected. PPI was a bit softer than consensus on Friday, but that is not enough to justify markets’ reluctance to price out Fed easing. The Fed funds future curve prices in 21bp of cuts in March, and 168bp by year-end. Our view remains that the Fed won’t start cutting before May, and that the total easing package will be 150bp. Accordingly, the rally in short-term USD rates appears overdone, and weakness in the front part of the USD curve should support some recovery in the dollar. However, we suspect that the data may prove insufficient to trigger a USD rebound for now; the consensus view of a dollar decline later this year seems to be making investors keen to sell dollar rallies. Also, the Fed probably needs to send a clearer message that the latest data does not justify the kind of aggressively dovish view embedded in money market pricing. There are a few more Fed speakers lined up this week, but perhaps dollar bears will want to hear it from Fed Chief Jerome Powell, who is not scheduled to speak until the 31 January FOMC announcement. Incidentally, the US data calendar isn’t very busy this week. Retail sales and the University of Michigan inflation expectations will attract the most attention along with jobless claims - which came in well below expectations last week, reinforcing the narrative of a still-tight labour market. We think the dollar will be driven more by other events than data this week, barring major surprises. First, the results of the election in Taiwan have raised again the delicate question of Taipei-Beijing relationships, with tensions among the two seen as a major risk for Asian and global risk sentiment this year. The dollar might benefit from some outflows from exposed EM FX. The situation in the Gulf also looks rather volatile after the US and UK military operations last week, even though the impact on oil prices has been muted so far.   Domestically, we’ll monitor the market reaction to the business tax relief extension currently being discussed in the US Congress. The impact of fiscal support may turn out to be negative for risk sentiment – and positive for the dollar – as markets see a greater risk of sticky inflation and a lower chance of Fed rate cuts. We think the dollar is more at risk of a rebound than a further correction from these levels, although the chances of another rangebound trading week in FX (DXY still hovering in the 102/103 region) are high.

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