Daily Market Update

USD Drifts with Jittery Investor Sentiment

February 07, 2024

The United States Dollar this morning drifted a bit lower as investors waited with bated breath for the results of a record-large 10-year Treasury note auction, and jitters remain prevalent in the US regional banking and commercial real estate sectors.

Overview

The Bloomberg Dollar Spot Index fell slightly, though it is still hovering just off its 2.5-month high hit at the beginning of this week. It seems, generally speaking, that after an extremely heavy data slate the last couple of weeks, investors have emerged vaguely more confident about the state of the global economy. Though the USD is falling slightly today, the American exceptionalism narrative continues to dominate markets and is keeping the USD near its 2-month highs against most majors.

It’s important, however, not to view the world through entirely rose-colored lenses as further signs of cracking continue to emerge, particularly in regard to regional, European, and Japanese banks. Shares of New York Community Bancorp swooned on Tuesday to their lowest price since 1997 after Moody’s cut the regional lender’s credit ratings to junk, and investors are nervously watching for any sign of contagion amongst other regional banks. Due in part to the beleaguered lender’s high exposure to the US commercial real estate sector, a common holding for US regional banks, European and Japanese banks’ nerves are also fraying. Treasury Secretary Janet Yellen said she thinks the problem in commercial real estate is manageable, but it’s quite clear that the sector’s slow-motion crisis will be at the forefront of investors’ minds.

Elsewhere, anticipation is building that China’s leadership may intervene further to boost its ailing equities. It appears that investors around the world are losing confidence in China writ large, moving their assets to other locations like Japan, and a larger overhaul package from President Xi & co. may be necessary to jump-start the world’s second-largest economy. Looking ahead to the rest of this week, Banxico meets tomorrow, and a few Fed speakers are on the docket, but USD will likely remain in calmer waters than the last few sessions.

What to Watch Today…

NZD ⇑

The Australian and New Zealand Dollars are gaining ground against USD this morning, with the bulk of gains going to the Kiwi after labor market data in New Zealand showed wages grew 1% in Q4 of last year, and the entirety of the report was stronger than expected. Speculation on further Chinese stimulus measures is also boosting the Antipodean currencies. When coupled with the Reserve Bank of Australia’s rather hawkish policy stance in comparison with its peers, AUD and NZD are up on the week.

GBP ⇑

Pound Sterling is a top performer in the G10 this morning after one of the UK’s largest mortgage lenders said housing prices rose at their strongest pace in a year and a half. Though GCP is still slightly weaker for the week against the USD, its gains this morning are substantial to the tune of a third of a percent. Bank of England Deputy Governor Sarah Breeden also spoke to the media this morning and signaled she is likely to push to wait at least a few months before cutting interest rates as UK inflation remains quite entrenched.

 

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