Dollar Softens a Little as Market Awaits Developments

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The US dollar is slightly softer against most of the major currencies but is in narrow ranges ahead of today’s key events, which include US retail sales and the debate in the UK parliament over Brexit.  The yen is the main exception.  The local markets are closed for a public holiday, and the yen did initially strengthen (the dollar eased to ~JPY112.10) but surrendered those gains and consolidating its biggest loss last week in 10 months.  

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Possibility of a Soft Brexit Excites Sterling (too Early?)

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After a little wobble, sterling has responded favorably to the resignation of the UK Brexit team led by David Davis.  The idea is that a path to a softer Brexit is good for sterling.  In fairness, it is a bit early to reach this conclusion, and the softer dollar tone puts wind in sterling’s sale.  There is a GBP244 mln sterling option at $1.3375 that expires today.   The June highs were set in the $1.3450-$1.3470 area.

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BOE Spurs Dollar Pullback


  • The BOE’s hawkish hold yesterday changed the near-term dynamics in the FX market
  • A modest recovery in the euro area flash PMI helped provide some fuel for the move that was already underway
  • Japan reported its All-Industries Index, which rose 1.0%in April after a flat reading in March
  • OPEC appears to be moving toward a formal hike of as much as a million barrels
  • Mexico mid-June CPI is expected to rise 4.57% y/y vs. 4.46% in mid-May
  • Brazil auctioned another $2 bln in FX swaps yesterday  Continue reading

What Happened Monday?

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Initial risk on sentiment drove the dollar lower and euro higher, but this quickly evaporated.  The dollar recovered against most major currencies and the euro was sold to new six-month lows.  Italian politics remained center stage.  Oil continued to fall.  The Turkish lira staged a sharp recovery following new central bank measures.  

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Greenback’s Advance Narrows

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Powerful and sustained trends are at risk.  US yields and oil turned down.  The yen, which had fallen for eight consecutive weeks bounced back smartly.  The euro and sterling’s heaviness continued, however, and we note that in the futures markets, the bulls added to gross euro longs for the second consecutive week.  

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Europe’s Sovereign Bond-Backed Securities

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The European Commission is proposing that the private sector create asset-backed securities around sovereign bonds that match the capital key.  These derivatives could allow banks (and other investors) to easily break from the home bias and diversify from their sovereign.    Opposition was immediate and it is not clear if the private sector will take up the call enthusiastically.  

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Merkel: Is She a Xi?

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two Germany flags on top of the Reichstag

China President Xi famously consolidated power in recent years and the term limit as head of state has been abolished.  Germany’s Merkel is also consolidating power for the creditors in Europe.  Here we discuss her next potential moves that involve the ECB and the EC.  

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