US Dollar drops on long term interest rate views

The story of the last 24 hours is the drop in the value of the US Dollar. Federal Reserve meeting minutes confirmed that inflation will stay low for an extended period, and bond yields will do likewise. Hence the ten year US Treasury yield dropped to 1.62%, alarmingly low for a ten-year outlook, and the USD dropped too.

GBPUSD is up to just below $1.38, with $1.3850 being a likely short term target. EURUSD shot up to $1.1960 for the first time in a month and looks set to, once again, test the $1.20 level. All other USD based exchange rates are also reflecting USD weakness.

Amidst this movement, the GBPEUR rate has stabilised just above €1.15 (€1.1490 equates to 87p per Euro). The effect can also be seen in stronger Aussie and Kiwi Dollars. Both have gained at least a cent against the Pound. GBPAUD starts Wednesday at A$1.7950, the lowest it has been since 8th April. GBPNZD starts at NZ$1.9420; the lowest this has been since 22nd March. However, the GBPCAD exchange rate has followed the USD’s path, which is up to C$1.7320 this morning, a cent higher than yesterday’s low.

Part of the Australian dollar’s strength will stem from a very positive consumer sentiment index, quite at odds with the recent poor business sentiment surveys. The RBNZ left their base rate on hold. What else could they do in this environment?

Sterling slips on BOE change

Sterling’s poor showing against the Euro may also have something to do with the news that Andy Haldane, a notorious hawk in the Bank of England, may be leaving. He could be relied upon to be the first to call for tighter monetary policy in almost all situations, so his departure could soften the BOE’s policy stance.

Central Bankers rule the day

It isn’t a big day for hard data, but the central bankers will be in full flow. We will have speakers from the BOE, ECB and several Federal Reserve members. The most influential will be those from Christine Lagarde of the ECB and Jerome Powell of the Fed. We will also see the Fed’s Beige Book, a round-robin of several Fed Districts’ economies.

Have a fab Wednesday. 

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