Dollar Inactivity evident as breakout risk and not tranquility
The Dow Jones FXCM Dollar Index was able to close out this week’s session and was relatively unchanged. This quite rebound from the two month low at 10,650 during the last week was definitely a relief. In the context that the greenback is holding its ground despite the equities forging a rebound, this can be viewed as an intrinsic strength counteracting and superseding an otherwise essential theme. This can also be viewed as a complacent currency and capital markets which perpetually ignore an inevitable resolution to a much more different elemental market theme.
The S&P500 has remained stable in its recovery efforts against the recent week’s tumble. There are so many justifiable equities to dive into deeper correction and thereby push the dollar to a much higher level narrowing down the essential gap to a market rate version of a much fairer value with peak earnings growth and until such time the mass position for such concerns, it should not be considered an active form of market adjustment. The speculations regarding tapering are still variably seen as the most prominent form of means for a market-wide move. However, we still need the actual fright to evolve such from just a mere interest rate adjustment.
Euro Suffers as ECB Splits on Rate Cuts Options while Italian Market’s plummet
Despite its losses were relatively mild, it was hard to miss the fact that the Euro was nevertheless still lower against all of its other major counterparts. Amidst a relatively fair day, two themes boiled over this week.
A 2.1 % drop in Italy’s equity markets reflected apprehensions regarding the threat of the Italian political party in pacifying the coalition government if they tried to remove the former Prime Minister from his current post. The market took cognisance of the mixed remarks amongst ECB officials regarding the high probability of future rate cuts. Further easing would most likely have meagre effects of the economy as it would only destabilise the currency’s yield.
British Pound Returns from Holiday to Speculation on BoE
London markets closed their past session for the Summer Bank Holiday. Sterling has had very little change against its major competitor, GBPUSD closed a mere 7 pips higher than it did than its recent close. The absence of UK traders is not the primary reason for the pound’s inhibition. The central banker’s first official policy address is providing quantitative easing open as an additional option for traders. The Jackson Hole deputy governor held that more stimulus is always a better option and if debates further divide, gilt purchases will remain and it could mean that the pound will eventually rally.
Emerging markets taking clearer steps just before outright FX wars
Brazil’s central bank in the recent week announced that a $60 billion programme was aimed towards putting a stopper in the currency’s massive 26 % depreciation against the dollar over the course of 5 months. The intervention programme would use this capital through swaps and repurchasing agreements through $500 million bites in this week’s end of the year-order in order to prevent panic dollar purchasing on the assumption that there is a present scarcity.
This exchange in pressure is reflected throughout the Emerging Markets as numerous investors are apprehensive by the warnings made by the Fed with regards to its Taper plans which is intended to unwind exposure in several high risk regions as the cheap loans availability dried up. This is another move in a currency battle that global policy officials will not be officially labelled as a “currency war”. This week’s extensive 3.6 % USDBRL drop emulates the well founded belief that this effort will snowball as it is worth noting the pair advancing 1.3 % this week.