The United States Dollar is trading in narrow ranges against most major currencies this morning as markets continue to digest the implications of the Federal Reserve’s supersized interest rate cut earlier this week.
Overview
Equity and risk markets are continuing to reap the benefits of such a move, and risk appetite, though slightly diminished today, is still much higher than it was at the beginning of this week. The Bloomberg Dollar Spot Index is setting the stage to, ironically, close the week quite close to its opening position for such a busy week in the macro world. Volatility has been high, though, with wild swings for USD across the G10 board Wednesday and overnight into Thursday.
The ’central bank Super Bowl’ week finally wrapped overnight with the Bank of Japan leaning dovish as Governor Kazuo Ueda signaled the BoJ is in no rush to further normalize its ultra-loose monetary policy. Though the central bank is expected to raise rates at its December meeting to 0.5%, and inflation readings did rise to 2.8%, Ueda indicated that any moves will be carefully considered. JPY, in response, is the biggest loser this week in the G10 against USD. All told, as the dust settles, markets were downright euphoric following the Fed’s decision Wednesday, and yesterday, multiple US equity benchmarks closed at record highs, but the good vibes are now being pulled back a touch as traders begin to turn their focus to the future and wonder what is next. Gold prices, for their part, continue to rally as traders look for more effective hedges against the central bank and economic risk through the fourth quarter of this year. However unlikely, there is still a chance that the Fed’s outsized move does prompt a resurgence of inflationary pressures, and additionally there are still whispers of a potential recession in the US, so such assets traditionally can protect against either side of the risk equation.
This slammed-busy macro week is not quite finished yet – the US will see the release of preliminary PMI data for the month of September later this morning. Though the release is unlikely to materially move the Dollar after the week’s wild swings, it is still a good benchmark for assessing the necessity of the Fed’s supersize move.
What to Watch Today…
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GBP ⇑
Pound Sterling is far and away the week’s best performer across the broader G10 spectrum, and its run of strength against the Dollar is no exception. Cable is currently sitting just off its highest price in two and a half years following the release of UK retail sales this morning that blew market expectations out of the water. Retail sales excluding fuel grew a full percent in the month of August and posted an annualized gain of 2.5%, nearly double what traders expected to see in the release. On the heels of a hawkish hold from the Bank of England yesterday morning, GBP has made outsized gains against most currencies through the week and is a standout performer of the whole quarter.
CHF ⇑
Swiss Franc, once again in quite volatile trading, is set to close the week nearly half a percent weaker against USD as safe haven assets writ large have slid amidst signals of easing monetary conditions around the world. The currency did, through Wednesday and Thursday, swing in a range of a percent and a half as volatility in the FX world gained back steam but has returned to calmer waters this morning. The Swiss National Bank, for its part, has expressed concern over the recent strength of the currency, and traders’ watchful eyes are on the central bank, as it has intervened to weaken the currency in the past.
