Signs of Global Monetary Tightening Crush U.S. Dollar

The U.S. Dollar suffered big losses overnight, falling to its lowest overall level in sixteen weeks according to the Bloomberg Dollar spot Index.

USD

China surprised markets overnight when it spoke of halting purchases of treasury bonds, which brought yields up while also solidifying the idea that the world’s top central banks are reducing their asset purchases, a sign of monetary tightening. This development combined with increases in commodity prices uplifted currencies against the greenback.

Furthermore, there is some anxiety growing over congressional negotiations in regards to a budget that satisfies both political parties. The confusion as to what can be accomplished by the January 19th deadline is starting to scare some investors. Global prosperity that gets rid of easing combined with U.S. uncertainties is a bad mix for the buck.

 

EUR

The Euro recovered as European stocks dwindled in red territory, which also benefitted the Swiss Franc as both pieces of tender work as safe-havens. Additionally, French Industrial Production contracted by (-0.5%) in November, giving further credit to the European Central Bank for assessing that the continent’s economy needs to stay accommodative in order to survive these bumps in data indicators.

We will monitor ongoing reaction to China’s announcement on bonds and any other headlines since economic figures are dry at the moment. These Euro swings are likely to keep going throughout the year with rapid half-percent moves becoming commonplace.

 

JPY

The Japanese Yen is trading at its strongest level since November 28th, boosted by the Bank of Japan’s decision to sell back bonds into the market. The move also represents the fastest pace of Yen appreciation in eight months.

Commodity markets are up, equity markets have hit record highs, yet the Yen is building momentum based on the BOJ’s willingness to gradually take away easing and a very stable political environment. We forecast the Yen to remain a powerful entity in 2018 as it plays the role of safe-haven, stable national growth, and an attractive asset as negative interest rates could potentially disappear this year.