Arab World Unrest & Rising Interest Rate Expectations - The combination of continued unrest in the Arab world with rising expectations of interest rates increases virtually everywhere in the world except the US has weighed on the USD today. The USD is not seeing the safe-haven flows due to the unrest that it is usually accustomed to seeing, mainly because of its negative fiscal and monetary policies. Add to this, rising interest rate expectations in Europe and the UK and you get a USD that is on its back foot. In Europe, ECB officials Yves Mersch and Nout Wellink said today that they were ready to fight inflation by raising rates when needed, prompting rate futures to price in a 25 basis point hike in August. This comes after last week's warning by Italian central bank governor Mario Draghi. ECB President Jean-Claude Trichet is due to speak today, so we will be looking to see whether he adds to the hawkish tone of other ECB members. Also putting a floor under the Euro was a signal from German Chancellor Angela Merkel that she would consider to renegotiate the terms of Greece’s bailout. In the UK, the GBP jumped after minutes to the February policy meeting showed a third policymaker voted for a rise while others would consider one if UK economic recovery resumed. But the real surprise was that BOE's head economist Dale voted with Sentance and Weale in favor of a hike and not the Deputy Governor Bean, who last week declared that he had joined the hawks. So now the market will speculate that Bean that will join the rest of the hawks at next month's meeting, setting the stage for a May rate hike. In Asia, the USD reach its lowest level in almost 2 weeks against the Yen even though Japan surprised the market with its first trade deficit in almost two years in January. In Canada, in a head scratcher the CAD lost ground during the morning trading succession even though the price of oil pushed past $100 a barrel.
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