USDOLLAR Index Flirting with Break; BOJ Meddling in JPY
- Commodities, equities tumble, bonds, precious metals, Yen rally.
- BOJ rumored to have started intervening in market after 12 GMT.
- As market volatility rises, it's a good time to review the "Traits of Successful Traders" series.
It's day two of Fed Chair Janet Yellen's trip to The Hill, and things can only get better: truthfully, yesterday's testimony was a waste of time. The United States is in the midst of a rather vicious presidential election cycle, so seeing a bit of political theater shouldn't be surprising; but the lack of depth to the questions yesterday clearly shows how out of touch fiscal policymakers are with the economy. The Fed - monetary policy - may be at its limits. Stimulative fiscal policy - infrastructure reinvestment and education initiatives, to start - would go much further for helping the US' structural labor market issues over the long-term than say, the Fed keeping rates near zero for another six months. Hopefully the Senate Banking Committee yields more insight into the Fed's thinking rather than another tortorous session on elementary concepts of policy making.
Policymaking seems to be front and center these days, not just in the US, but in the Euro-Zone, China, and Japan. Officials are having a difficult time communicating confidence to markets, and as a result, a lot of the recent price action across the G10 currencies has been driven by central bank meddling. As we forecast would happen on January 6, the Riksbank intervened in EUR/SEK to weaken the Swedish Krona. As we had diagnosed in the discussion on the BOJ's shift to NIRP on January 29, markets have quickly wisened up to the charade that is the BOJ's competitive devaluation policy; one that is failing now that JGBs have turned negative and the Ministry of Finance has had to cancel the March 10Y JGB auction.
Central banks are getting desperate, moving to counter one another at each turn it seems. Volatility across asset classes seems almost guaranteed to stay for the foreseeable future.
--- Written by Christopher Vecchio, Currency Strategist
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