The United States Dollar continued its losing streak this morning as stock prices globally advanced, showing easing concern in the financial sector following the rescue deal for Credit Suisse.
Overview
Over the weekend central banks around the world beefed up swap lines with USD to stabilize global demand for the traditional haven, but those lines through Monday and into today have been very lightly utilized. Future prices for the DJIA rose over 300 points this morning on the rebound of regional bank stocks including First Republic Bank, and European stocks opened the morning broadly higher, spelling USD weakness.In a reversal from traditional economic principles, increasing bets that the Federal Reserve will hike 25 basis points tomorrow instead of holding are actually prompting a fall in demand for USD. A hike by the Fed tomorrow at 2 PM, markets seem to think, would be a vote of confidence in the global financial sector’s resilience and ease uncertainty around the world, slowing demand for haven currencies internationally.Looking ahead to tomorrow, it is increasingly likely that while the Fed hikes 25 basis points, Jerome Powell will provide little guidance for future meetings, making this a dovish hike. Powell’s data-driven approach will be very much in play here as central banks still face entrenched inflation, and any statements on future moves will be closely watched.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇑
The Euro has kept its gains, for now, after a week that saw the deflation of the buck as data did not seem to match the intentions of the Fed. It is at a 5-week high over the buck. More importantly, this week has seen some officials raise their voices about the European Central Bank’s need to consider controlling high inflation. In particular, energy prices on the other side of the Atlantic have made it very difficult for companies to do well and political friction has complicated the effectiveness of natural gas and oil from other nations. ECB member Luis De Guindos echoed the sentiment of others in saying that the inflation being experienced may not be transitory.
JPY ⇑
The Japanese Yen fell victim to improving global risk sentiment this morning, falling over three-quarters of a percent against the USD. Stock prices of UBS, the buyer of Credit Suisse, rose nearly 4 percent this morning on European trading and First Republic in the US is running almost 20% higher in pre-market trading. The Bank of Japan is likely to continue on its dovish course, but uncertainty in the global market persists.
