Dollar Becalmed as Markets Wait for US Leadership
• Follow-through dollar buying after the short-squeeze before the weekend has not materialized and a consolidative session is likely.
• The G7 meeting closed ranks around checking China, but in terms of other initiatives, like providing vaccinations to poorer countries, fell shy of expectations.
• The EU and UK failed to bridge the gap over Brexit.
• The UK looks set to delay the economy-wide re-opening by as much as four weeks. Sterling is among the weakest currencies today.
• Although the US reports retail sales, industrial production, and portfolio flow data, the focus is squarely on the FOMC meeting and press conference on Wednesday.
• Brazil’s central bank also meets Wednesday and has already committed to its third 75 bp hike this year.
The short squeeze that lifted the US dollar ahead of the weekend has seen limited follow-through buying, and instead a consolidative tone emerged. Europe is searching for direction and perhaps waiting for US leadership after a quiet Asia Pacific session, with several centers closed for holiday today (China, Hong Kong, Taiwan, and Australia). Japanese and South Korean equities advanced. Europe’s Dow Jones Stoxx 600 is up for the seventh consecutive session. Gains in information technology, energy, and utilities are helping to lift the benchmark to new record highs. US equity futures are posting minor gains.
Benchmark 10-year yields are slightly firmer. The US yield is at 1.46% after shedding 10 bp last week, the most since last June.
Outside of the Norwegian krone (~+0.25%) and sterling (~-0,20%), the major currencies are +/- less than 0.1%. Emerging market currencies are also mostly quiet. The Turkish lira is extending its recovery. It is the seventh advancing session. Most of the other freely accessible and liquid emerging market currencies have a heavier bias today. The JP Morgan Emerging Market Currency Index is off for a second consecutive session, something it has not done for a little over a month.
Gold dropped $21 ahead of the weekend and is off around another $20 today. It tested support around $1855. The 200-day moving average is near $1840. Oil is trading higher, and the July WTI is at new highs approaching $72.00.
Bannockburn Global Forex