The US dollar has continued to recover from the slide on what still largely appears to have been a buy the rumor sell the fact response to Yellen’s speech just before last weekend. Yellen was the last of around 11 Fed officials that spoke last week, and nearly all but Bullard signaled readiness to hike rates at next month’s meeting.
Soft German factory orders and the prospects of another House of Lords inspired amendment to the Brexit bill have helped the dollar. Sterling has been pushed through $1.22 for the first time since January 17. It had been testing the 61.8% retracement of the rally since briefly falling through $!.20. That retracement target was $1.2260. After several tries, it closed below there yesterday and following through selling was seen in the European morning. The next target is near $1.2150. The trend line from the flash crash low and the mid-Jan low comes in now near $1.2050.
The amendment that the House of Lords looks set to pass today calls for a more meaningful vote on the final agreement. While Prime Minister May has already made such a concessions, as we noted previously, the way it is currently structured, may give Parliament a choice between the deal May negotiates and no deal. The House of Lords wants a more significant say. The Conservatives do not have a majority in the House of Lords. Labour, Lib Dems, and some Tory defectors look poised to provide a majority. The measures would then return to the House of Commons next week.
The euro has also seen follow through selling today after the short squeeze ran out of steam near $1.0640. With today’s losses, the euro nearly retraced 61.8% of its gains off last week dip below $1.05, which comes in near $1.0550. The intraday technicals warn against chasing the euro lows and suggest potential back into the $1.0600-$1.0620 area. However, the two-year interest rate differential is rising to new multi-year highs today near 218 bp, which is eight basis points higher than last week’s close. This acts, we argue, as an important drag on the euro.
