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US Dollar Falls as Geopolitics, Q1 Slowdown Bets Cool Fed Outlook

US Dollar Falls as Geopolitics, Q1 Slowdown Bets Cool Fed Outlook

2017-04-17 04:02:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points:

  • US Dollar falls as risk aversion, Q1 slowdown fears dent Fed outlook
  • Japanese Yen, New Zealand Dollar capitalize on shifting yield spreads
  • Fed’s Fischer may offer USD a lifeline, S&P 500 futures point lower

The US Dollar underperformed in overnight trade as risk aversion as geopolitical jitters cooled Fed rate hike expectations. Stocks in Japan and China fell and Treasury bonds rose amid worries about escalating tensions with North Korea.

Dour economic news-flow probably compounded pressure on the greenback. An update of the Atlanta Fed’s GDPNow model following Friday’s retail sales and CPI figures showed US output may add just 0.5 percent in the first quarter, marking the weakest performance in a year.

The Yen and New Zealand Dollar proved most able to capitalize. While the two currencies are at opposite ends of the G10 FX yield spectrum, their place on its relative extremes can make them particularly sensitive to changes in rate spreads. Souring sentiment was doubly helpful for the anti-risk Japanese unit.

Looking ahead, most European bourses will remain closed in observance of Easter Monday but S&P 500 index futures are pointing decidedly lower. This suggests that the risk-off mood is likely to continue to define price action as Wall Street comes online.

A quiet economic data docket will yield the spotlight to scheduled comments from Fed Vice Chair Stanley Fischer. The beleaguered US currency may find a lifeline if he continues to advance a comparatively hawkish narrative envisioning further rate hikes and perhaps even balance sheet reduction before year-end.

What do retail traders’ buy/sell decisions hint about the US Dollar price trend? Find out here!

Asia Session

US Dollar Falls as Geopolitics, Q1 Slowdown Bets Cool Fed Outlook

European Session

No data.

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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