Previous Articles

The US dollar strengthened against most of the major currencies as a number of prominent US firms posted better than expected earnings, with Fed officials adding to the mix as they conveyed their opposition to future rates cuts. As a result, the greenback picked up the biggest gains against the low yielding Yen and Swiss franc as investors raised their risk appetite, with the pairs rising to 103.7 and 1.018, respectively. The US dollar also advanced against the Australian dollar, while the Canadian and the New Zealand dollar posted minor gains as oil rose to a new record high of $116.82 a barrel. Against the European currencies, the euro fell as the pair was dragged down to the 1.580 range, while the British Pound strengthened to 1.995 against the US dollar.

The speech by Fed official Lacker and Fisher encouraged bullish sentiment for the US dollar as both officials voiced concerns that the aggressive rate cuts by the Fed has amplified the downside risks for stagflation, and presented a hawkish tone as they address the mounting problems that are stemming from the rise in inflation. However, both officials failed to touch up on their future growth projections for the economy, and spend most of their time discussing the prolonged period of time it would take for the economy to recovery. The two officials went on to say that the problems arising from inflation should be not be delayed, and spurred speculation that the Fed may not be as willing to aggressively cut interest rate at their next meeting.

The stock markets advanced as Citigroup, Google, Caterpillar, Honeywell, and Xerox posted better than expected earnings - reflecting that US firms are weathering the economic slowdown better than they have in the past. As a result, the DJIA jumped 228.87 points to 12,849.36 points, with 26 of the 30 components advancing. The broader S&P 500 posted its best week since February as the index rose 24.77 points to 1,390.33, with 213 stocks hitting a new 52 week high.

US Treasuries continued to slide as investors left the safe haven of risk free bonds, and push short term bond prices lower as the three-month Libor rate surged 9bp to 2.9075 percent. As a result, the benchmark 10-Year yield fell to 3.708 percent from 3.729 percent, while the 2-Year yield climbed to a bolstering 2.138 percent from 2.107 percent.

Looking ahead, we do not expect much currency fluctuations until Tuesday’s rate decision by the Bank of Canada at 13:00 GMT, and will get to see the Bank of England’s Meeting Minutes prior to the rate decision at 8:30 GMT. The rise in volatility is expected to carry on well through the Reserve Bank of New Zealand’s rate decision on at 21:00 GMT, with the focus turning to the Durable Goods Order Index on Thursday at 12:30 GMT.