Dollar Ticks Higher; Equities Continue to Swing

The U.S. dollar has experienced heightened volatility this week but the moves have been relatively small compared to the whiplash seen in global equity markets.

USD

After falling on Friday, the Dow Industrial Index fell by the most points on record on Monday, representing an over 4.0% fall. As markets opened yesterday, stocks again plummeted. However, throughout the day the Dow swung over one thousand points to close up 2.0%. Similar moves were seen across other American indexes and foreign markets. As a result, the biggest winner has been the safe-have Japanese yen.

The greenback is up against most of its partners this morning but recent price movements indicate that current levels will likely not last long. A longer run of risk aversion, however, could benefit the greenback.

Today’s economic docket remains light so trading will likely take its cues from bond and equity markets. There is no much in the way of fundamental data the rest of the week so it is likely to see the greenback trade in wide, volatile ranges while lacking a definitive direction. In short, buy the dips.

 

EUR

The Euro is down slightly this morning against the U.S. dollar despite German political news that should be good for the common currency. German Chancellor Angela Merkel’s bloc and the Socialist Democratic Party have reached an agreement over another coalition government. The agreement ends months of frustrating talks but will allow Merkel to remain as Prime Minister.

German industrial production failed to meet estimates and contracted 0.6% in December. The fall comes after a 3.0% jump in the month prior.

 

GBP

The British pound trended lower overnight against the U.S. dollar, but still remains elevated near pre-Brexit vote levels. The next round of negotiations between the U.K. government and the European Union are set for next month so “Brexit” headlines will continue to be a major talking point.

Tomorrow, the Bank of England is expected to hold interest rates. The central bank will also release its Quarterly Inflation Report. BoE Governor Mark Carney will hold a press conference and traders will focus on his tone towards possible future tightening. Futures are currently pricing in a 50% chance of a hike in May.