US Greenback (USD) bearishness subsided a bit of final week, helped by the mildly hawkish end result of the FOMC, and has receded additional this morning as markets react to the US assault on Iran’s nuclear amenities and issues over potential Iranian responses, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret be aware.
Asset markets stay subdued
“The USD is broadly larger on the session up to now, with solely the CHF in a position to withstand the USD’s advance. The MXN and CAD are outperforming marginally among the many main currencies whereas the AUD, NZD and JPY are underperforming. Elsewhere, nonetheless, the market response is relatively subdued. Shares are narrowly combined (down a bit of in Europe, up a bit of in US fairness futures phrases), main bond markets are a bit of softer total and crude costs are considerably firmer however uneven. USD positive aspects recommend some danger aversion amongst traders however the broader market response is relatively subdued.”
“Iran/Israel proceed to launch assaults at one another however choices for Iran to reply to the US assault are maybe restricted. The parliament voted to shut the Straits of Hormuz however the management has not endorsed motion and tanker site visitors seems unaffected at this level. A broader escalation of the confrontation now appears a much bigger danger, nonetheless. Fed Governor Waller’s remark that the Fed could be in place to chop charges on the finish July assembly is more likely to stay a minority view amongst policymakers, provided that final week’s dots inferred a extra cautious outlook amongst extra policymakers than March.”
“A leap in oil costs will solely bolster Fed warning. Swaps mirror simply 3bps of easing danger for July now, down from 6-7bps on the finish of final week. Powell is more likely to strike a guarded tone in his congressional testimony this week. The USD dump could be due a pause however a sustained restoration is unlikely amid different, severe basic challenges—slower progress dangers, flight from USD property, twin deficit worries, valuation. Though seasonal developments have been weak for the USD up to now this 12 months, seasonality sometimes turns USD-negative as we transfer into July/August.”
