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As the week got going, we talked about the possibility that a lot of the Dollar bullishness and equity market bearishness may have been priced to the max, leaving room for a healthy reversal of flow. And indeed, this is how things have been playing out. read report
Tension in the Middle East has eased, which has definitely contributed to some of the latest recovery in risk assets. Currencies have been better bid against the US Dollar and US equity futures are trying to turn back to the topside. read report
It’s been a wild start to Friday with markets getting tossed around after news broke of Israel’s retaliatory strike on Iran. Initially, there was a wave of panic and fear, with US equity futures sinking and everything pretty much selling off against the US Dollar on the flight to safety. read report
Markets have been mostly consolidating recent moves into Thursday. We’ve seen some profit taking on Dollar longs and renewed demand for US equities into the dip. Whether or not this holds up is a completely different story. read report
We’ve seen some profit taking on Dollar longs into Wednesday, but overall, the US Dollar remains well in demand, especially after the Fed Chair came out with his comments on Tuesday. Jerome Powell signaled the central bank would likely keep rates on hold for longer on account of an ongoing battle with inflation. read report
Investors have long been playing the bet that the Fed will opt to lean on the side of policy accommodation. But in recent months, this bet has been a tougher one to play, and in recent weeks, things have only intensified, with rate cut expectations significantly scaled back. read report
The run of Dollar demand has resulted in fresh yearly highs against many currencies. We had already seen a wave of Dollar demand on the back of a repricing of Fed rate expectations, and in recent days, geopolitical factors have played into even more Dollar demand. read report
On Thursday, we highlighted the fact that investors are desperate to use anything to justify the Fed needing to get back to moving to more rate cuts than less in 2024. And on Thursday, as per our commentary, US producer prices were all of a sudden that big deal economic data that normally isn’t a big deal. read report
US rate expectations have seen another wild repricing in the aftermath of this latest hot US CPI print. The market is now looking for just 42 basis points of cuts in 2024, almost another full basis point of a cut since only last Friday. read report
The early portion of this week has been relatively tame, with the market not wanting to make any fresh bets on direction until more clarity comes later today in the anticipated US economic data. We have however highlighted an interesting disconnect between the rates market and currency market. read report
