The rebound on the dollar has continued over the past few sessions. However, there is little to suggest that this move has any grounding, other than perhaps for now the dollar is the best of a bad bunch. Treasury yields have been treading water, whilst yield differentials are hardly shouting for continued dollar strength either. The rhetoric surrounding the US/China trade negotiations remains positive, with Treasury Secretary Steve Mnuchin suggesting the talks are “very productive” and is expected in China for continued meetings next week. There is a sense that it is the newsflow surrounding other currencies which may be playing a role. Brexit uncertainties are a factor, with rhetoric from the various EU presidents talking about Brexiteers going to hell, hardly setting the platform for positive discussions with Theresa May on potential renegotiations today. The euro and sterling have both suffered relatively. Furthermore, the dovish shift from the Reserve Bank of Australia has also hit sentiment and driven a move back towards safety, where the dollar again benefits. This near term dollar strength has undoubtedly impacted through markets, but EUR/USD remains stuck in a range, whilst Cable is mid-range and gold is unwinding back towards key support. These are all near term dollar positive moves, but this could begin to dissipate. With the lack of dollar positive drive through yield differentials, it would not be a surprise if that were to be the case.
Wall Street closed marginally lower with the Dow off by -0.1% and the S&P 500 -0.2% at 2731. The US futures are also continuing the move lower, by around -0.2%. Asian markets remain impacted by Lunar New Year, but the Nikkei was lower by -0.6% overnight. European markets are also following the trend lower with FTSE futures and DAX futures both around -0.3% lower early today. In forex, there is still a sense of mild dollar strength pulling through the majors, with an added risk averse vibe. This is showing with the yen and Swissy marginally gaining, as all other majors are giving up ground slightly to the dollar. In commodities, the dollar gains have pulled gold back towards the key $1300 support area which is holding for now, whilst the equivalent support on silver at $15.60 is also holding. With the market sentiment edging negative, there is a slip back on oil by just over half a percent today.
The main focus on the economic calendar today will be the Bank of England’s monetary policy announcement at 1200GMT. Overwhelming consensus expects no change on rates (with such uncertainty over Brexit), leaving rates at +0.75% and QE unchanged (at £435bn). The meeting minutes are expected to show the decision being unanimous on the MPC with all nine voters opting for unchanged policy. However, the big interest will be in how the Bank of England adjusts its forecasts for growth and inflation as part of the Quarterly Inflation Report, both of which are likely to be revised lower. The US data focus is with the Weekly Jobless Claims at 1330GMT which are expected to drop back to 221,000 (from the 15 month high of 253,000 last week). Also keep an eye out for FOMC’s Richard Clarida (vice chair, permanent voter, centrist) who speaks at 1430GMT.
Chart of the Day – Silver
Having rallied sharply to a high of $16.20, silver has been corrective over the past week, but this correction is an unwinding move within the medium term recovery and should provide the next chance to buy. The uptrend since early December comes in at $15.50 and is a basis of support, whilst there is a historic long term pivot around $15.60 which is another basis of support. T