U.S. Dollar down as Fed promises no surprises

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U.S. Dollar down as Fed promises no surprises

SEPTEMBER 23, 2021

The U.S. Dollar seems to not have changed much from where it was on Monday as the FX swings between the moods of worry and cautious optimism. 

Overview

Once again, the Federal Reserve has met and communicated that while economic fundamentals are steadying and gradually ticking up, the Fed will not surprise with any tapering. In fact, the wait-and-see approach was very predictable as global markets grow frustrated with Chinese market intervention, potential debt default, and fears that equity markets will soon see a correction. The U.S. situation merits optimism, but with measure, and the Fed seems to not be interested in going on a taper tantrum like before that then they seemed to regret in recent years, the COVID crisis notwithstanding.

Additionally, markets seem to welcome this careful manner in handling hawkish expectations as now traders feel the economy can continue to thrive even if the Fed sovereign purchases are not there for high levels of liquidity. The buck meanwhile is just seeing others advance against it, but again, almost with the prudence that the Fed is showing. Jobless claims, both Initial and Continuing were up slightly higher than expected. We shall see what we get at 9:45 AM for September Purchasing Managers Index figures.

What to Watch Today…

  • U.S. PMI Composite September 9:45 AM

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EUR  

Not a ton of excitement except for the build-up to Germany’s elections coming this weekend. Much like many others around the world, eyes are on China’s ability to handle the Evergrande debt crisis and to monitor whether any disaster there can mean a “Lehman Brothers” moment for trading. Today, at least, there seems to be growing consensus that this will mean perhaps poor figures for the world’s second-largest economy, but nothing major in terms of a calamity-like scenario. We shall see as the faith in anything with China has faded with a domestic focus on government control over the firm activity. In a deeply inter-connected world, the shared-currency section indeed needs to focus on the health of the Pacific Rim.

GBP  

The pound is rallying this second based on the minutes released from the last Monetary Policy Committee (MPC) meeting that showed half the members believe conditions are good enough to hike the benchmark interest rate by 25 basis points. Naturally, traders are adding to bets for a small hike sooner rather than later. Currently, odds of a hike by the start of February, stand at over 40.0% at the moment which translated into almost a 1.0% swing in Sterling’s favor thus far this morning.

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