Markets Calm, Fed Calm, Dollar Immediately Steps on the Gas
The dollar is in a favorable position, extending its gains against most G-10 currencies in the past hour as U.S. equity futures rose to session highs. Signs of divergence between the Fed's likely interest rate direction and that of several other G-10 currencies also appear to be providing support.
TSMC appears to be an early catalyst, beating net profit and sales projections and drawing a bid in Nasdaq 100 futures. European equity futures followed suit, while gold fell past its low, suggesting a broader improvement in risk sentiment across the market. Why this is good news for the dollar remains unclear. There's an argument that the dollar is now trading more like a risk asset and should benefit when sentiment improves, as it did this morning.
Traders may also be shifting their attention away from the Trump-Powell drama that sent the dollar plummeting on Wednesday and instead focusing on what the Fed actually says. Atlanta Fed President Raphael Bostic said last night that he still supports fixed interest rates and pointed to recent inflation data showing rising price pressures. And overnight, New York Fed President John Williams said: said the current restrictive stance is "absolutely appropriate."
The Fed's patient stance will benefit the dollar, especially as other G-10 central banks appear poised for additional interest rate cuts. The Australian dollar led the decline against the US dollar after weak employment data strengthened the case for the Reserve Bank of Australia to cut interest rates next month.(ayu)
Source: Bloomberg
