I spy with my little eye, a greenback getting stronger. The signs are there in big levels being quietly surpassed. I see it in USD/ILS trading above 4.00, in USD/JPY trading above 120.00, USD/MXN trading above 15.00 and I wait patiently for the time in the very near future when USD/BRL trades above 3.00. None of these levels I’ve indicated are necessarily psychological (or have indeed sustained), but they do have some significance. When they are all quietly occurring without us making much of a big deal, it tells you something about the manifest destiny of the US dollar. I have noted for some time that the world’s reserve currency has been consolidating after the strongly bullish trend of the second half of last year. Well.. here we are in the 3rd month of this year, and something tells me that the trend might be about to gather strength again. Listen, I could be wrong, but the ‘across the board’ strengthening of the US dollar seems almost tidal in its ubiquity.
Some solid data this morning. German retail sales are surging to the fastest pace in 7 years, and for all the difficulties a super strong currency represents, GDP growth in Switzerland has continued to maintain a steady pace, confounding economist expectations of slightly slower activity, still… to be clear this GDP number is prior to the recent de-pegging. But that’s not all, Portuguese unemployment is falling, with the number in January down to 13.3% compared to 15% previously. Indeed, taken as a whole there has been an improvement in employment across the Eurozone in the last few months. Back in your box doomsayers! On the other side of the world, only rampant house prices in Sydney appeared to stay the hand of the Australian central bank (RBA) from cutting rates further, although they did indicate that further cuts are likely. Despite its strong performance today, I don’t believe the Australian dollar will be immune to power of a move back into a US dollar trend.
As we mentioned in yesterday’s blog, the US employment data will be of huge interest later on this week. Another strong number could set the market off to re-pricing the likelihood of interest rate hikes in the United States, and that would have knock on effects on a wide variety of asset prices. Currency markets might be the only place where there is a decent attempt being made to discount a more hawkish Federal Reserve!
For now though risk sentiment is solid, the Nasdaq Composite is now trading above 5,000 – levels not seen since the dotcom bubble burst – and as I mentioned recently the MSCI World Index trades at record highs. I suspect it will take something big to shake up all this good feeling. I for one don’t expect anything in the near future.
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