An element of cheer has returned to the market after Wednesday’s rate announcement and commentary from the Federal Reserve. While the fed held off on a rate rise as expected they dropped language outlining the concerns that turmoil in emerging and global financial markets posed for US economic growth and strongly signalled that a December rate rise was certainly not off the table. Responding to this news we have seen a return to levity as global stock indices and the greenback move upward.
Zeroing in on Asia, the yen’s status as a safe haven currency hasn’t been a hindrance even as the shift in sentiment has favoured riskier assets as the yen posts gains relative the big dollar ahead of the BoJ’s policy meeting tomorrow. Similarly, we have seen a return to strength in the aussie and kiwi dollars after the AUD took a knock versus the greenback due to weaker than expected inflation. Currently both currencies are benefiting from a relative lift in commodity prices and in New Zealand’s case a decision on the part of central banker’s to maintain interest rates as is.
While regional indices in Europe trade in the green there has been somewhat of a return to strength in the euro against its British and American crosses as the common currency trades stronger aheadtomorrow’s release of GDP and inflation data for the EZ. These moves have all occurred in the background of a European bond market that is seeing yields quickly move into negative territory as traders scoop up bonds in the wake of Mario Draghi’s comments on Friday which stopped just short of a promise of further monetary policy accommodation in December. Notwithstanding its current bout of strength, developments on the monetary policy front have conspired to see the euro slide to its lowest level versus the greenback since August with market perceptions being that the euro will continue suffer especially in light of revised expectations of a rate rise in December on the part of the Fed.
Prior to the open in New York, equity futures are signalling the positive sentiment lifting stocks in Asia and Europe won’t make it over the Atlantic as trading in North America is set to open in the red. Today is potentially a big day for both the dollar and equities, while we are knee deep in an earning seasons that has seen a better than average number of companies beat their earnings expectations we also have advance GDP and unemployment claims data on the docket for later this morning. As of yet the USD is trading broadly higher against its crosses with the loonie also benefiting from the rebound in oil prices. The risk today lays in the unemployment claims and GDP data for the American economy to be released later this morning, with a worse than expected figure likely to result in a weaker buck even in light of the Fed’s commentary yesterday.
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