The US Dollar continued to edge higher as prices retrace losses suffered after last week’s jobs data release. Traders appeared to read that report as just supportive enough to sustain the now status-quo call for a rate hike at this week’s FOMC meeting. It did not advance the case for a steeper tightening path thereafter however, which perhaps accounted for an unwinding of short-term long USD exposure and handed the greenback its largest drawdown in five weeks.
The move lower seems to have lost steam however, with traders understandably reluctant to overcommit directionally until after the policy announcement has passed. Tellingly, the benchmark currency advanced alongside benchmark US Treasury bond yields.
The British Pound underperformed as the government of Prime Minister Theresa May won parliamentary authority to activate Article 50 of the Treaty of Lisbon and thus formally launch Brexit proceedings. Scotland First Minister Nicola Sturgeon followed this up with a call for new referendum on independence from the UK. Scotland overwhelmingly voted in favor of staying within the EU last year.
The Australian and New Zealand Dollars also faced heavy selling pressure. The highest-yielding currencies in the G10 FX space can be particularly sensitive to shifts in relative rate spreads, which turned against them as the Fed’s would-be rate hike neared. The cousins’ perch at the top of the beta tanking also makes ties them to risk appetite trends, which seemed to be a disadvantage this time on a messy day for Asian shares.
From here, Germany’s ZEW survey of investor confidence headlines the European data docket. The slight improvement projected by economists is unlikely to mean much for the Euro however as the ECB remains locked into a dovish policy posture and voters in the Netherlands head to the polls, with the eurosceptic Party of Freedom advocating a referendum to leave the EU seen having a strong showing.
