December 7, 2022
US Yield Shock Meets The Fight Against Dollar Dominance

By Simon Flint, Bloomberg markets live commentator and reporter

Tension between stellar dollar yields and resistance to appreciation should continue to grip markets next week. We may be close to the end game for the dollar rally, but have not established a clear catalyst.

Things to ponder over the weekend include:

  • There’s a rich calendar of Fed speakers to give insights into how to interpret the latest Fed decision
  • An intriguing question is whether the unemployment/inflation trade-off makes sense. It seems highly likely that Fed speakers will retain a laser focus on inflation in the short-term. However, there is debate about whether they are really prepared to inflict the kind of job losses required to bring down inflation.
  • ECB speakers may also explore the implications across the Atlantic -- Lagarde highlights on Monday and Wednesday. And then next Thursday gives us individual Eurozone countries’ inflation data, followed by the consolidated reading on Friday.
  • Russia’s formal annexation of the areas of Ukraine under its control may be widely expected, but their faltering performance in the war creates risk of further escalation, which could spill over into energy prices.
  • There is a growing view that the slump in oil prices is overdone. If the prospect proves right, this will worsen terms-of trade for most non-US countries.
  • Despite the deep skepticism that intervention has any sustained impact, traders can’t sleep on yen intervention just yet. History shows that intervention comes in clusters, and tends to be effective for a week after the initial hit.
  • The PBOC’s slightly lame fix on Friday suggests that I am perhaps days away from being proven wrong in thinking that 7.00 was sacrosanct on the fix. Although I was in the minority, should this break early next week, it now seems only a matter of time before 7.20 is reached on CNH.
  • This could severely delay the dollar decline, with spill-overs especially acute for commodity exporters and Asian currencies.
  • China PMIs on Friday are expected to remain stable, although the survey is very small so far. It will require a decent beat of 50.0 on manufacturing to relieve the gloom.
Tyler Durden Sat, 09/24/2022 - 11:30

By Simon Flint, Bloomberg markets live commentator and reporter

Tension between stellar dollar yields and resistance to appreciation should continue to grip markets next week. We may be close to the end game for the dollar rally, but have not established a clear catalyst.

Things to ponder over the weekend include:

  • There’s a rich calendar of Fed speakers to give insights into how to interpret the latest Fed decision
  • An intriguing question is whether the unemployment/inflation trade-off makes sense. It seems highly likely that Fed speakers will retain a laser focus on inflation in the short-term. However, there is debate about whether they are really prepared to inflict the kind of job losses required to bring down inflation.
  • ECB speakers may also explore the implications across the Atlantic — Lagarde highlights on Monday and Wednesday. And then next Thursday gives us individual Eurozone countries’ inflation data, followed by the consolidated reading on Friday.
  • Russia’s formal annexation of the areas of Ukraine under its control may be widely expected, but their faltering performance in the war creates risk of further escalation, which could spill over into energy prices.
  • There is a growing view that the slump in oil prices is overdone. If the prospect proves right, this will worsen terms-of trade for most non-US countries.
  • Despite the deep skepticism that intervention has any sustained impact, traders can’t sleep on yen intervention just yet. History shows that intervention comes in clusters, and tends to be effective for a week after the initial hit.
  • The PBOC’s slightly lame fix on Friday suggests that I am perhaps days away from being proven wrong in thinking that 7.00 was sacrosanct on the fix. Although I was in the minority, should this break early next week, it now seems only a matter of time before 7.20 is reached on CNH.
  • This could severely delay the dollar decline, with spill-overs especially acute for commodity exporters and Asian currencies.
  • China PMIs on Friday are expected to remain stable, although the survey is very small so far. It will require a decent beat of 50.0 on manufacturing to relieve the gloom.