The US dollar is mixed ahead of the US employment data. The Antipodeans and Scandis are doing best while sterling and the Canadian dollar are under-performing. 

Investors appetite for risk has increased.The market is confident that the next Fed hike is unlikely to be delivered before June.The implied yield on the June Fed funds futures contract is 45 bp.  This is up from 38.5 bp on February 11.If the Fed were to hike rates on June 15 and Fed funds were to average 38 bp in the first half of the month and 63 bp in the second half of the month, fair value is about 49 bp. 

China, which is beginning its legislative session (NPC), has already eased monetary policy through a cut in requiredreserves and has signaled scope for some fiscal support as well.While BOJ’s Kuroda has explicitly denied planning another rate cut at this time, the government is contemplating another supplemental budget.The ECB meets next week, and although reports, which appeared to help support the euro, suggest there is no consensus yet on anything besides a 10 bp deposit cut, investors do anticipate more. 

While some may express concern about the credibility of the Federal Reserve, which will likely change the dot plots and scale back the four hikes anticipated in December to maybe two, the larger credibility issue lies with the BOJ and ECB.Kuroda had denied intentions of introducing negative interest rates in Japan a week prior todoing so. Many investors feel they were misled.  

The ECB’s credibility is a different issue.  Here it is really more of a question of whether Draghi has the authority that matches his rhetoric.He talked a good game in the lead up to the December meeting, and many felt the actions fell shy of what he had implied.The euro had fallen to almost $1.05 in anticipation and had not seen that area again. 

Print Friendly, PDF & Email

Related Posts