USD steadies as Treasury’s tightening dawns on markets

We’ve talked about it here and the markets are awash with mentions of the US Federal Reserve’s ‘tapering. i.e. reducing their stockpile of bonds to suck liquidity out of the financial markets and somewhat normalise the cash in circulation. It is a big deal and worth discussing but the US Treasury has already started doing the same thing and that has not been spoken about a lot. Having pumped $2 trillion or thereabouts, into the US financial system, the US Treasury is now planning to sell more bonds than they are buying.

I mention this because it ought to strengthen the US Dollar and if you add in the more overt QE unwinding that the Fed will get itself into over the next 12-18 months, the Dollar has every chance of making significant headway.

In the market today, the GBPUSD rate, which rose to $1.3750 yesterday, has stalled. As this news gains more publicity, this little rally could well reverse. So USD buyers may wish to protect themselves ahead of that.

The EURUSD rate is also showing signs of turning. Having run out of steam at $1.1760 yesterday, this pair is a tad lower this morning. To be fair, this pair has been in a downtrend since the middle of May, so this is just a continuation of that trend.

Meanwhile, GBPEUR is still trending higher; having found GBP buyers around €1.1650. Other than a retail sector survey by the British Retail Consortium this morning, we lack UK data today. So this may be a bit damp squib-ish.

Japanese leading indicators improve

Overnight news included very upbeat leading indices from Japan. The index itself at 104.1, was up 2,4% in the month of July. That’s encouraging against a background of covid concerns. The GBPJPY rate has been in a slight downtrend since May and sits at 150.50 this morning.

GBPEUR trending higher – German ZEW awaited

The rest of the morning is dominated by German ZEW business sentiment surveys. These are forecast to be rather upbeat, so anything less will punish the Euro.

The afternoon session will be focused on US crude oil inventories and Durable goods data. Set against a backdrop of money supply speculation, these will perhaps be less influential than any normal week…whatever one of those looks like.

And the US President has refused to extend the deadline for full withdrawal from Afghanistan. It seems fitting somehow that this shamble of war is ending with a shambles of an exit. You can feel nothing but sorrow and sympathy for those in the eye of this debacle.

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