USD is weaker in a risk-on world – leaving rates as the key factor to watch today post-BOE and U.S. CPI, up 0.2% in April, writes Bob Savage Thursday. Emerging currencies seem to be suffering against the dollar.
We all are hearing the music, but we don’t know the song, let alone the band. Is this the siren song before the ruin of trend or the prelude to a larger concerto?
Asia and U.S. Equities are higher, oil higher, USD lower, rates are nowhere. We are witnessing the reverse of “selling in May and going away” as markets wait for the Bank of England and their forward guidance – no matter how unreliable – on policy and the U.S. CPI (rising 0.2% in April) and its actual inflation components.
We are listening to words not even yet spoken. We all know we don’t eat Apple iPads nor drive our cell phones, but this is the stuff that can hedonistically distort the data.
What happened before the big news today may just not matter to what happens after, as we have learned in 2018, positions dominate trading markets. Even yet as technical charts have been less reliable. Being in a crowded trade and then mixing it with supporting fundamental policy and economics hasn’t been much of a winner – note the 1Q U.S. earnings and the 1Q S&P 500 (SPX) stock performance as an example.
But this is all about the future, which is now, or almost now for the BOE and the FOMC CPI reaction. Defining the future conditional tense in English can be tricky, yet accomplished with modality with words like maybe, perhaps, can, might, should and even yet the uncertainty of the path forward remains.
Overnight the data push back on the 2018 precept that better global growth and higher energy costs mean higher inflation and so the need for more tightening.
Markets are moving despite the CBOE S&P 500 Volatility Index (VIX) sinking to 13% - watch New Zealand dollar (USD/NZD) at 5-month lows, BTPs breaking 1.90%, Oil back over $77.50. Witness China CPI in April at 1.8% y/y, witness the dovish tilt to the Reserve Bank of New Zealand Adrian Orr who repeats a rate cut is just as likely as a rate hike and pushes out the 2% inflation path to 2020.
Geopolitics continue to drive markets and make volatility a reality – witness the ongoing missile attacks and retaliation between Israel and Iran in Syria.
Witness Trump greeting three prisoners from North Korea on their return.
Witness the stark warning from Italy – as a populist government seems likely threatening the EU integration. Other policymakers were also busy – Philippines central bank raised rates 25bps to 3.25% - as expected – while in Malaysia rates were on hold at 3.25% with the move in Malaysian Ringgit (MYR) lower tracking the election surprise as the opposition wins.
What this means for forex today is that the USD is weaker in a risk-on world – leaving rates as the key factor to watch post BOE and U.S. CPI.
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