Fed taper talk pushes USD higher

Good morning

A bit of a rollercoaster day for USD yesterday as the ADP release disappointed and USD saw some weakening, before Feds Clarida spoke and his comments were hawkish enough to push the dollar from its afternoon lows to session highs. He said that inflation risks were to the upside and were his thinking to be right, he would look for Fed to be raising rates by end 2022, early 2023. This follows my comments earlier this week that some central banks are beginning to sound a little more cautious on upside inflation than the market is prepared for. USD was also helped by decent services ISM data, particularly the employment component which some see as a better indicator for nonfarms than the ADP number.

Other Fed officials echoed Claridas comments, Daly saying tapering should be seen later this year or early next, while Kaplan would like gradual tapering to begin soon. Yellen however says she sees inflation in line with Feds target by year end.

Aussie trade balance came in pretty much as expected overnight, slightly lower exports were offset by lower imports leaving a final surplus of AUD10.5bio.

BoE rate announcement is at midday today and is one of the central banks who it is thought could start to make more hawkish noises even though policy is widely expected to remain unchanged. GBPUSD had started to push higher yesterday, reaching 1.3955 but was sold off to 1.3900. I’m wondering now about buying some overnight options which would take in both BoE and US employment numbers tomorrow. The 1.3850 - 1.3950 strangle costs 35 usd pips (ie $3,500 per £1mio notional) for some relatively cheap two-way interest. EURGBP down at 0.8510 (GBPEUR 1.1750), could test those April lows around 0.8470 if the BoE are hawkish.

Another Olympic event blew my mind yesterday. I’d urge you to take a look at the speed climbing highlights. It is simple, take a 15 metre wall with a few hand holds on it, start at the bottom and get to the top as quick as you can. Takes about 7 seconds or so. It is so quick it looks as though the climbers are being hoisted up by the safety rope. It is one of those things that your brain just cannot seem to comprehend. Seriously, if that wall was lying flat on the floor, you wouldn’t be able to crawl along it at the speed they climb. Well worth a look.

- 09.00 ECB economic bulletin

- 09.30 UK markit construction PMI

- 12.00 BoE rate announcement

- 12.30 BoE press conference

- 13.30 US initial jobless claims, good trade balance

- 13.30 CAD trade balance

- 15.00 Feds Waller speaks

- 00.00 RBAs Lowe speaks

- 00.30 Japan household spending

- 02.30 RBA monetary policy statement