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21 Aug 2014
Bullish USD trend continues - BBH
FXStreet (Córdoba) - The BBH analyst team notes that in the currency markets, many are getting excited about the possible continuation of the bullish dollar trend. The FOMC minutes, the dissent in the BOE’s MPC and the recent data out of the EU and Japan reminds us the differences between major central banks.
Key Quotes
“In the currency markets, many are getting excited about the possible continuation of the bullish dollar trend. The euro has fallen against the dollar for the last 4 sessions, making new lows for the year after falling nearly 5.5% since the May highs. Sterling has also followed suit, though less enthusiastically, down about 3.5% since the July highs. The yen has fallen in eight of the last nine sessions.At ¥103.77, the dollar broke out of the range and threatening the key ¥104.0, which was the high in early April. If that is breached, we are back to January levels”.
“Of course, relative moves in the fixed income space have been mostly consistent with these trends and the well understood policy differences between major central banks. For example, the spread between US and German 10-year yields started to widen again, now at 144 bp (in favor of the US). The spread had stalled around 120 bp between April and mid-June, but has now resumed its upward trend. The US-UK spread is back to flat after favoring the UK since early April, bottoming at -15 bp”.
“Indeed, markets seem to be once again falling under the familiar constellation of the US and UK on the hawkish side and the ECB and the BOJ on the dovish. This perception was reinforced this week by the two dissenting votes from the BoE in favor of hikes and the recent string of soft data from the EU and Japan”.
Key Quotes
“In the currency markets, many are getting excited about the possible continuation of the bullish dollar trend. The euro has fallen against the dollar for the last 4 sessions, making new lows for the year after falling nearly 5.5% since the May highs. Sterling has also followed suit, though less enthusiastically, down about 3.5% since the July highs. The yen has fallen in eight of the last nine sessions.At ¥103.77, the dollar broke out of the range and threatening the key ¥104.0, which was the high in early April. If that is breached, we are back to January levels”.
“Of course, relative moves in the fixed income space have been mostly consistent with these trends and the well understood policy differences between major central banks. For example, the spread between US and German 10-year yields started to widen again, now at 144 bp (in favor of the US). The spread had stalled around 120 bp between April and mid-June, but has now resumed its upward trend. The US-UK spread is back to flat after favoring the UK since early April, bottoming at -15 bp”.
“Indeed, markets seem to be once again falling under the familiar constellation of the US and UK on the hawkish side and the ECB and the BOJ on the dovish. This perception was reinforced this week by the two dissenting votes from the BoE in favor of hikes and the recent string of soft data from the EU and Japan”.