Oil prices settled lower yesterday with a large increase in US crude oil inventories, while surplus expectations for the global oil market will also be providing some headwinds
We have long stressed that diminished US exceptionalism represents a meaningful risk to our stronger Dollar view, and the path for the Yen in particular. When markets are most concerned about US growth, pushing both yields and equities lower, the Yen tends to outperform even the Dollar.
At the same time, the US dollar is being negatively affected, especially since its nominal effective exchange rate suggests the currency is overvalued. The US dollar is penalised by concerns over US growth, with an increased risk of stagflation taking hold in the United States.
The Canadian dollar was the top performing G10 currency yesterday with the policy announcement and communication update ultimately helping to lift the currency. The 25bp cut was well telegraphed and fully priced so the 10bp intra-day jump in the 2yr swap rate was more down to the communications having a hawkish element.
