USD: Latest Market News

Goldman Sachs see broad weakness on USD

Goldman Sachs see broad weakness on USD

Our market forecasts through the balance of the year assume that US Treasury yields will rise but that the US Dollar will depreciate against most crosses.

The Dollar's correlation with Treasury yields tends to vary over time, and depends on the underlying macroeconomic fundamentals driving rates and FX markets

In a period of rising cyclical optimism, as we expect over the near term, we should anticipate a negative correlation, with rising rates associated with broad Dollar weakness

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Fed's Bullard says Fed should proceed with tapering

Fed's Bullard says Fed should proceed with tapering

Fed's Bullard (2022 voter) says Fed should proceed with tapering despite the weak US jobs data, while he dismissed concerns the rebound in the labour market was faltering and said there is plenty of demand for workers. USD strength after comments

  • Note Bullard is the first Fed official to speak following Friday's NFPs.
  • Headline nonfarm payrolls disappointed expectations in August, printing 235k (exp. 750k); the unemployment rate fell by 0.2ppts, in line with the consensus, to 5.2%. Other measures of slack improved in the month, with the U6 rate of underemployment falling to 8.8% from 9.2%, the employment-population ratio, which is a metric that is closely watched Fed officials, rose to 58.5% from 58.4% (vs pre-pandemic 61.1%), although the participation rate, which the Fed also factors into its deliberations, was unchanged at 61.7%. The wages data saw average hourly earnings rising +0.6% M/M (exp. +0.3%), lifting the annual rate to 4.3% (from 4.1%); average workweek hours declined a little to 34.7hrs from 34.8hrs. Analysts noted that the lower than consensus headline was hinted at by several proxies, including the Homebase Survey, the ISM survey data (only manufacturing was available ahead of the NFP report), as well as the Conference Board's gauge of consumer confidence, which all gave the impression that Delta fears were contributing to labour market tightness. Ahead, Pantheon Macroeconomics is expecting further weakness in the September data too, and is also flagging concerns over the prospects of an October revival, given that labour market behaviour lags cases, and PM says cases are yet to peak. "Before Delta, we were looking for 1M-plus payroll gains in the fall, but that’s now going to be a real struggle, suggesting that Chair Powell will be in no hurry to be pushed into tapering while the labor market picture so uncertain," Pantheon writes, "we think the announcement comes in December, but the FOMC could easily be forced to wait until January." Meanwhile, many have been looking for evidence that the inflation upside in recent months was more persistent than the Fed was acknowledging, and were looking for this evidence within the wages metrics (the idea is that Americans would begin to demand higher compensation amid rising price pressures, which could feed into a loop of inflation becoming more persistent). While this month's data may allude to that theme, Pantheon warns that while the +0.6% M/M jump is startling, "it overstates the trend because the data are not mix-adjusted, so a month with no net job gains in the low-paid leisure and hospitality sector will see a bigger increase in AHE than a month with more even payroll growth." Even so, the consultancy notes that wage gains have averaged +5.8% Y/Y in the three-months to August vs the previous three months, and while it is high, PM argues that "this ignores the idea the faster productivity growth potentially raises the Fed’s tolerance for faster wage growth; ultimately, what matters is unit labour costs, which remain contained."

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Non farm Payroll (NFP) BIG MISS -> US EQUITY OPEN DOWN IN RED

The NFP US jobs report covering August was down too much below expectation. Most Affected domain was retail and leisure/hospitalitysectors.COVID fear is again keeping people home but also another cause is laborsupply issue because wages are up.·  Payrolls grew just 235,000 in August &unemployment rate fell to 5.2%.·  The leisure/hospitality sector had no net jobincrease and retail employment fell, yet businesses in those segments are stilltrying to hire.  ·  Similarly, construction lost jobs because ofmaterials shortages and increased price in transports ·  Strong wage growth and rising participation are notrelevant since labor demand is lower.·  The labor force participation rate was unchangedat 61.7DollarINDEX is DOWN, Stocks down and, Gold Up

Stocks open subdued across the board as August failed to follow up from July’s solid NFP report – note a recent uptick in the NDX. The below forecast range 250k US jobs added in August has hit risk sentiment, seeing stock futures reverse earlier strength (particularly Russell 2k), with a pause in jobs added in the Hospitality and Leisure sector suggestive of some Delta-induced reopening roadblocks, although one could argue that is “transitory”   Stock Markets are all time high this week ignoring the danger of Tapering this Year.  Monday markets are closed and we expect reactions on Tuesday  

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Hurricane Ida is closing crude output 1.74mln bpd

Hurricane Ida  is closing  crude output 1.74mln bpd

Oil producers have shut-in 95.65% of US Gulf of Mexico crude output totalling 1.74mln bpd and 93.75% of natgas production, while the Colonial Pipeline announced it will temporarily shut fuel lines from Houston, Texas to Greensboro, North Carolina and Marathon Petroleum's Garyville, Louisiana refinery (556k bpd) was also shut down over the weekend. US President Biden said Hurricane Ida is life threatening with the devastation likely to be immense and beyond the coasts, while he added they are planning for the worst from the hurricane and that it would take weeks for some places to restore power following the hurricane. Furthermore, President Biden later declared a major disaster for Louisiana and Entergy announced that all of New Orleans had lost power due to catastrophic transmission damage from Hurricane Ida.

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FED Voters comments regarding Tapering

Fed Vice Chair Clarida (voter) stated there has been clear progress on the labour market which is in agreement with Fed Chair Powell and he would support a taper if the labour market gains continue as expected, while he added that we will get a better read on the labour market this fall. (Newswires)

Fed's Waller (voter) said we have definitely made progress on inflation and that one more good jobs report will be sufficient to be able to start tapering. Waller added that he would like to start to taper early this fall and does not see a reason to wait, while he definitely would like to see MBS taped faster and would like to finish taper by mid-2022 to have the space to raise rates if required. (Newswires)

Fed's Mester (2022, 2024 voter) reiterated the Fed has basically met the criteria for tapering asset purchases and believes the Fed should use the September meeting to lay out thinking about the pace and timing of tapering and looks to end taper by mid-2022. Mester also noted that whether they start tapering in November or December, it is not going to make a material difference for the economy and reiterated that even if there is some pullback, she thinks the economy will remain strong. (Newswires)

Fed's Bullard (2022 voter) said he favours tapering treasuries by USD 20bln a month and MBS by USD 10bln a month. (Newswires)

White House forecasts budget deficit to reduce by USD 684bln in the next decade, while there were separate comments from White House Economic Adviser Bernstein that they need to keep pushing a robust recovery in the US. (Newswires)

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