USD: Look out for ADP and FOMC minutes as we speak
The New 12 months begins with traders taking a glass-half-full view of the worldwide economic system. Fairness markets stay near their highs, industrial commodity costs are shifting gently increased and yield curves are present process some bearish-steepening – all strikes sometimes related to development. The decision of OPEC+ to resume supply increases from February additionally seems to be like a vote of confidence within the demand story, although Asia and its zero-tolerance stance to Covid-19 create pockets of pessimism (because it did final 12 months).
Luckily, the US economic system seems to be in a good position, which is retaining the Fed normalisation story and the robust greenback story alive. We’ll see extra updates on this later as we speak when the minutes of the December FOMC assembly are launched. This assembly was about as hawkish because it might get, suggesting accelerated tapering of the Fed’s QE exercise and a median expectation for 2 fee hikes in 2022. It was notable yesterday that the Fed’s arch-dove, Neel Kashkari, mentioned he favoured two Fed fee hikes this 12 months.
Maybe for some greenback bulls the efficiency of the greenback since that FOMC assembly has been disappointing. Sure, USD/JPY has damaged to a brand new excessive (increased vitality costs have most likely performed a task right here), however broader trade-weighted measures of the greenback are nonetheless one % off the highs seen in late November. Notably, the market has struggled to cost the Fed Funds fee cycle above the 1.50/1.60% space over the subsequent two to a few years – begging the query of whether or not all the things has been priced for the Fed tightening story?
We expect it too early to declare that the greenback bull pattern is over, however do acknowledge that some consolidation at increased ranges can permit different tales to play out. That appears to be the case with the robust efficiency of Sterling and a number of the CE4 currencies of latest weeks after the BoE pulled the set off in December and central banks within the Czech Republic (see beneath), Hungary and Poland have all accelerated their tightening cycles. These tendencies look set to proceed for the close to time period.
For as we speak we might anticipate DXY to stay supported in the course of its 95.50-97.00 vary and take its cue from the December ADP jobs determine launched at 1415CET after which the FOMC minutes launched tonight.