Since 2010, the USD Index has traded higher into the end of the year five out of the last seven years. The average gain for the USD during the fourth quarter of those five years was 3.75%.
During the fourth quarter of 2014, the USD index rallied from 85.00 to 91.50, which represented a 7.6% gain for the Greenback.
We mentioned in last week’s update that the three-week downside correction in the USD looked to have run out of momentum. More specifically, neither the Sterling or Euro were able to advance past their highs posted last Monday and the USD has gained traction on all the other G-7 crosses, as well.
The USD has been well bid against all the major crosses over the last 24 hours.
In his post-FOMC press conference, US FED chief Jerome Powell was clear that the central bank remains committed to steadily lifting US FED Funds rates into a neutral band….or about 125 basis points higher to 3.5%.
The Greenback had drifted lower in the lead up to Thursday’s rate announcement as some market commentators speculated that Mr Powell would soften his hawkish tone against the backdrop of rising trade tensions with China and increasing US sanctions versus Iran, Turkey and Russia.
Since posting a 14-month low near 1.2700 on August 15th, the Sterling has rallied close to 5% versus the USD and reached a 2-month high of 1.3260 during the Asian session last Friday.
And while the USD has had a softer tone against most of the G-7 currencies over the last few weeks, the rally in the GBP/USD has been particularity brisk. Much of the investor interest in the pair has been supported by recent progress between the UK and the EU over the final form of a Brexit trade agreement.
The USD, as measured by the USD Index, reached a 15-month high of 96.85 on August 15th. Three weeks later the AUD/USD posted an 18-month low of .7085 and looked to be heading much lower.
This disparity is due to the simple fact that the Aussie Dollar is not a component of the the USD Index.
As the USD Index has drifted lower over the last few weeks, the AUD/USD has rallied close to 3% higher and pushed against the .7305 level during the Asian session today. Much of the recent rally has been a result of the perceived de-escalation of the tariff tensions between the US and China (and the PBoC’s comments that it will not weaponized the Yuan as a retaliatory strategy).
This past weekend marked 10 years since the $600 billion collapse of Lehman Brothers on September 15th, 2010.
There were several articles scattered throughout the financial media discussing how capital markets survived that near-death experience. A few of the articles gave glowing reviews of how financial markets are now more transparent, safer and resilient than in 2010 … most articles did not have a positive tone.
A common theme among the articles was that the next trigger to a massive deleveraging of global financial assets will not come from sub-prime mortgage defaults, but rather from emerging markets (EM) debt default.
The Euro has been well bid versus the USD, as well as the crosses, since Mr Draghi took the podium for his post-ECB press conference yesterday.
Long-time viewers of Mr Draghi’s Q&A sessions will have notice two things: the last three press conferences have been about 20 minutes shorter than usual, and, none of the reporters ask really pointed questions about the EU banking system, the growing rate of non-performing loans or Brexit.
After the weaker print on the US ADP Private Hiring data, many market commentators were looking for last Friday’s US Non-Farm Payroll (NFP) report to soften the bullish tone in the USD.
However, a headline jobs growth number just North of 200,000, combined with a .4% rise in hourly earnings and sub-4% unemployment rate kept Forex traders on the bid for Greenbacks.
It’s worth noting that the grow in wages was the strongest monthly rise in over a year, and had a positive impact on the potential trajectory of the FOMC policy into the end of the year.
Against a backdrop of simmering trade tensions between the US and China, rising pressure on EM currencies and an increase in the chaos known as Brexit negotiations, Forex traders can now look forward to the release of today’s US Non-farm payroll (NFP) data at 8:30 am, NY time.
The USD has had a mixed session in Asia as the Greenback has gained against the JPY and AUD while edging lower versus the GBP and EUR.
Part of the reason the USD has surrendered some gains is a reflection of the softer ADP employment report released yesterday. The ADP was expected to show an increase of 190,000 private payroll jobs and disappointed with a print of 163,000.