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  • richard evans

Dollar up, rain coming down

Well there has been a bit of a change in the weather. Just as we were getting used to those lovely warm days, the heavens open and temperatures drop. The rain looks like it will continue through Friday, perhaps stopping in time for the lawn to need cutting at the weekend. Looks as though the England v Scotland match Friday could be a damp affair.

On the subject of the Euros, it looks like my curse has struck again. I’d fancied Turkey as an outside bet. That didn’t last long. Goldman Sachs research has been putting its research and analysis teams to good use, with their models currently pointing towards a Spain/Portugal final, a change from their starting prediction of Belgium/Portugal.

While looking at two countries meeting each other, worth noting the Biden/Putin meeting. Everyone seems to be putting on a brave face saying how well it went and that both sides understand each other, but I think the reality is more Biden telling Putin to stop hacking into US systems and trying to influence the political arena, also making it clear there will be major repercussions if Navalny dies in prison. You will remember Navalny, a fierce critic of Putin, somehow survived being poisoned last year after being treated in Berlin. He is now in prison in Russia. Putin meanwhile may have listened politely but I’m really not sure he’ll see the need to make any changes. If Navalny were to die in prison, I’m not suer what US would actually do.

USD – All about the Fed and the push higher in the dollar this morning. The Fed were about as hawkish as anyone had dared suggest, on the three main areas of interest, namely inflation, interest rates and tapering. The dot plot has moved to show two possible rate rises in 2023, from none expected previously. Indeed some are now thinking we’ll have a rate rise from US as early as next year. On inflation Powell did his best to assure markets inflation remains transitory but he did acknowledge there were risks that higher inflation could be more persistent than expected. On tapering, he said that talking about talking about tapering had begun. Still early days but it seems likely that Fed will reduce asset purchases later this year or early next. Expect more on that at the next meeting.

So in response, US 10 year yields pushed up from 1.49% to 1.59%, equities slipped back and the dollar pushed higher. The dollar has kept most gains and the question now is whether it builds on those gains and pushes higher still.

EUR – EURUSD at 1.1950 having dropped post-FOMC and then found renewed sellers on the London open, and I’m not sure it is stopping here. It has been almost exactly two months since we last saw these levels and with the hawkish Fed it looks like it will take quite something if we are to get back up above 1.20.

GBP – GBPUSD also suffers post-FOMC, GBPUSD trading at 1.3975 as I type. It is faring better against EUR, with EUIRGBP now 0.8550 (GBPEUR 1.1695), highest levels for GBP since early April. UK Chancellor Sunak made some interesting comments regarding inflation, saying expectations are for inflation to remain at target for the medium term. He does seem a little concerned about the level of inflation but perhaps suggests that it won’t run too far above target. Meanwhile Covid infections are on the rise. 9,055 new cases were reported yesterday, the highest daily increase since late Feb despite 42 million adults now having had at least one vaccine dose. Retail sales out early tomorrow morning.

- 08.30 SNB rate announcement

- 09.00 Norges Bank rate announcement

- 10.00 EU CPI

- 13.30 US initial jobless claims, philly fed survey

- 13.30 ECBs Lane speaks

- 00.30 Japan CPI

- 04.00 BoJ rate announcement

- 07.00 BoJ press conference

- 07.00 UK retail sales

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