The Federal Reserve turning dovish should be a trigger to sell the dollar, but apparently not quite so. Up against a raft of other even more dovish central banks, the economic outperformance of the US means that the US dollar continues to perform well. Yesterday’s ISM Manufacturing positive surprise helps to build a picture that suggests the US is not slowing sharply into the second quarter of the year. Treasury yields have jumped sharply higher in recent sessions, with the 10 year yield 13bps off its lows of last week and the yield curve now un-inverted between the 3 month/10 year duration. Positive US data is a key driver of continued dollar outperformance. One more, much to the incredulity of everyone outside the bubble of Westminster, UK MPs still cannot decide on a way forward to square the circle of Brexit. Alternative indicative plans for an EU Customs Union, a rehash of a common market and a second referendum were all voted against. Sterling is trading lower on the uncertainty whereby the events of last night surely raise the potential for an accidental “no deal” Brexit. However, taking a step back, if the market realistically felt this likely, sterling would be way more than just half a percent lower today. Cable closing below $1.3000 should still be seen as a gauge for traders’ sentiment turning more negative. Overnight, as expected, the Reserve Bank of Australia held rates steady at 1.50% (no chance, +1.50% exp, +1.50% last) in a fairly neutral announcement. The Aussie has underperformed slightly, slipping almost half a percent.
Wall Street was strong overnight with the S&P 500 +1.2% at 2867, although US futures are just giving back some of these gains today falling -0.2%. In Asia, there has been a fairly cautious session, with the Nikkei -0.1% and Shanghai Composite +0.2%. European markets are steady in early moves with the FTSE futures and DAX futures around +0.1% higher. In forex, the dollar remains supported even though Treasury yields have dropped back a touch leading to a mild bout of risk aversion today. The dollar is gaining across the forex majors, although the safe havens (yen and Swissy) are holding firm, whilst sterling is the big underperformer. In commodities, this uncertain outlook for risk means that gold is fluctuating around the flat line, however the positive outlook for oil remains on track.
It is a fairly European morning with the UK Construction PMI at 0930BST which is expected to improve slightly to 50.0 (49.5 in February) although the impact is likely to be minimal given the Brexit focus and that construction only constitutes around 7% of the economy. US Durable Goods Orders are at 1330BST and are expected to grow by +0.2% on the month for the core, ex-transport read (-0.1% in February).
Chart of the Day – NZD/USD
The Kiwi came under pressure last week on the back of a dovish surprise from the Reserve Bank of New Zeala