FX Trader, Loonieviews.net
Summary: The data are in, the Fed remains committed to policy normalisation, and both the USD and US equities are tilting higher.
The greenback is grinding out gains across the G-10 currency spectrum, bolstered by yesterday’s Federal Open Market Committee meeting results, rising stock market prices, and a round of robust economic reports.
Today's data reinforces the FOMC’s view that, according to the statement, sees economic activity rising at a strong rate with expectations for sustained economic expansion.
US Durable Goods easily beat forecasts and rose 4.2% in August. Q2 GDP was as expected at 4.2%. That news gave an added boost to the US dollar. EURUSD added to its European losses. Traders are eyeing the Italian budget negotiations with trepidation while the different interest rate policies between the European Central Bank and the Fed weigh on the currency pair. EURUSD technicals are negative after moving below support at 1.1720 and breaking the four-hour uptrend line from the middle of August when prices moved below 1.1702, putting 1.1630 in play.
GBPUSD is trading modestly softer after a somewhat choppy ride from the New York open of 1.3131. Prices climbed to 1.3162 during Bank of England chief economist Andy Haldane’s speech. He predicted that if there was a disorderly, no-deal Brexit, the BoE could hike or cut rates.
USDJPY was in demand from the open, rising from 112.79 to 113.10 where it is trading as of 14:00 GMT. Traders are focused on the prospect of rising US interest rates and a gain in US Treasury yields today.
USDCAD is consolidating gains from yesterday and in European trading following President Trump’s harsh assessment of Canada’s Prime Minister, its chief trade negotiator, and its negotiating tactics. Hopes for a September 30 trade deal disappeared faster than a cold beer on a hot day.
Wall Street traders are not bothered by yesterday’s rate hike or expectations for a December move or even trade wars. The three major indices are well into the green, led by a 0.78% rise in the Nasdaq.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
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