Monetary Policy

  • Fischer and Dudley suggest a 2015 rate hike could still happen

    Fed Governors Comment that a Mid-2015 Rate Hike is Still 'Reasonable'

    The US dollar is extending its advance as the divergence theme moves into overdrive.  The dollar has drawn close to JPY119.50.  The euro has fallen to new lows near $1.2320, turning back from $1.25 on Monday.  The Australian dollar briefly fell below $0.8390.  

    The main exception is sterling, which is holding its own after a stronger than expected service PMI.  Although it slipped below yesterday's low, Monday's low near $1.5585 remains intact, and sterling is trading around 3/4 a cent above there near midday in London.  

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  • Are countries depreciating their currencies to boost growth?

    Currency Depreciation as Monetary Policy

    Megan Trainor tells us it is "All About the Base".  It seems like many reporters and analysts may be mistaking her lyrics as it is all about debase, as in currency wars. 

    The latest surge of currency war stories follow the unexpected decision by the Bank of Japan to dramatically increase its Qualitative and Quantitative Easing at the end of October.  It was the same week that the Federal Reserve announced the end of its asset purchase operations.  Since the BOJ's decision, the yen has depreciated by 8.3%.  

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  • Four central banks meet during a light economic news week

    Central Bank Meeting Week Continues

    After yielding ground yesterday, the US dollar comes back bid today.  The main driver is the divergence that favors the US.  Specifically, yesterday two people we have identified as part of the troika at the Federal Reserve, from where policy signals emanate, played down the disinflationary threat of the fall in oil, saying it would likely be temporary. 

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  • The euro receives no help from Draghi and the ECB

    Draghi's Comments Offer No Surprises

    Contrary to the leaks, ECB President Draghi stuck to his intent that the ECB's balance sheet move back toward the 2012 levels.  He clearly confirmed that this was unanimous.  This was the first time, such a reference was made in the introductory remarks, which gives it more gravitas.  

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  • The ECB and BOE are not expected to change course

    The ECB and BOE Meet Today, but What Will Change?

    The dollar is mixed on the day, but moves have been modest ahead of the ECB meeting. The Euro recovered to trade just above the $1.25 area and sterling is hovering just around $1.5950. The Australian and New Zealand dollars are outperforming at $0.8610 and $0.7740, respectively. 

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  • The Federal Reserve and Another Taper-Tantrum

    U.S. Treasury Rally on the Second 'Taper-Tantrum'

    The prospects that the Federal Reserve would begin slowing its purchases sparked a market meltdown in 2013. The "taper tantrum", as it was dubbed, destabilized the capital markets. Now it is as if the markets have had a second tantrum, but this time US Treasuries rallied.  

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  • Secretary Lew has been clear about a strong dollar policy

    The U.S. Strong Dollar Policy Remains Intact

    Many participants seem confused. Despite the talk about the dollar by different Fed officials, dollar policy is set by the US Treasury. Secretary Lew has been clear. 

    First he reiterated the 20-year old mantra of a strong dollar being in US interest. Despite the polemical tactics to reduce this claim to absurdity, it does indeed have real and important significance. Proof is consider the impact of the opposite. If Lew would have said something to the effect that a strong dollar no longer served US interests the destabilizing impact would be immediately evident.

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  • The FOMC Meets and the Tone is Dovish

    Dovish FOMC Minutes Signal Some Push Back Against the Hawks

    The dovish FOMC minutes have pushed the consolidative tone into a dollar correction.  Asia and European markets extended the dollar decline.  These losses brought the greenback near initial retracement objectives or technical targets.    

    The euro approached $1.2800 before running out of steam.  Sterling poked through $1.6200 but has steadied ahead of the 20-day moving average near $1.6240.  The dollar fell to JPY107.60, holding above support pegged in the JPY107.30-50 area.  

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  • Will the Fed Minutes Change the Dollar's Direction?

    How will the Dollar React to the Fed Minutes?

    Corrective forces continue to grip the foreign exchange market.  Many expect the dollar's downside correction/consolidation to end today.  Technically-inspired short-term participants often see 3-4 day counter-trend moves to be typical of market moves.  Fundamentally-inspired traders expect the FOMC minutes, which will be released in the North American afternoon, to be read by the market participants with a hawkish bias.  

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  • A strong dollar pulls back slightly

    Dollar Pulls Back Slightly But Remains Strong

    Corrective forces continue to take hold of the foreign exchange market. It is long overdue and does not appear to be sparked by fundamental developments per se. Many short-term momentum participants had jumped aboard what had looked (and behaved) a one-way train. Late dollar longs were in weak hands, and once the momentum faltered, were squeezed out. 

    However, the dollar pullback has been minor, so far. We suspect is may have a little more room to run, but anticipate a hawkish read to the FOMC minutes that will be released in tomorrow in the NY afternoon.

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