US data in recent days helped ease concern that the economy is not strong enough to withstand the kind of tightening the Federal Reserve may need to enact in order to return inflation and inflation expectations back within officials comfort zone. And make no mistake about it, the pendulum of market sentiment has swung hard, abandoning the one and done view, which has really been a persistent pattern of thought throughout the two-year old tightening cycle.
Friday, June 16, 2006
Friday, June 9, 2006
How Now Greenback
We can identify thee main considerations when trying to ascertain the near-term outlook for the US dollar: market positioning, interest rates and the G7/IMF. Let’s review each, but to cut to the chase, the first two seem dollar supportive, though the third may exert pressure in the other direction.
Market Positioning
The market had amassed substantial short dollar position. Of course the net speculative position at the IMM is a readily available and is a good place to start. However, it is only a small subset of the currency exposures. One aspect of market positioning that seems exceptionally relevant is that according to industry reports, emerging market took in about $33 bln in the first few months of this year on top of the $20.3 bln all of last year. Clearly some of this money has been repatriated. It is difficult to know with any degree of confidence the extent the investment and speculative market is still short dollars, but whatever it is, it appears to be less than a week ago and two weeks ago.
The market had amassed substantial short dollar position. Of course the net speculative position at the IMM is a readily available and is a good place to start. However, it is only a small subset of the currency exposures. One aspect of market positioning that seems exceptionally relevant is that according to industry reports, emerging market took in about $33 bln in the first few months of this year on top of the $20.3 bln all of last year. Clearly some of this money has been repatriated. It is difficult to know with any degree of confidence the extent the investment and speculative market is still short dollars, but whatever it is, it appears to be less than a week ago and two weeks ago.
Friday, June 2, 2006
Strong Dollar in Word, Benign Neglect in Deed
The disappointing May employment data caught the market wrong-footed. The pricing of the July Fed funds futures contract had implied almost a 75% chance of a 25 bp hike later this month prior to the data and the combination of weaker than expected payroll growth and a moderate rise in hourly earnings have seen the odds fall toward 40%. As one would expect, this has weighed on the US dollar. The euro rose above $1.2940 to reach its highest level since May 15 when the high for the year was recorded just above $1.2970. The dollar has generally fared batter against the yen, but it did retreat to its lowest level since May 23, when the greenback dropped briefly below the JPY111 level.