Buck Buckles Post FOMC

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Market Drivers December 12, 2019
UK goes to the polls
Dollar remains offered post FOMC
Nikkei 0.14% Dax 0.42%
UST 10Y 1.804%
Oil $59/bbl
Gold $1473/oz
BTCUSD $7188

Europe and Asia:
SNB keeps rates at -0.75%

North America:
EUR ECB Meeting 8:30

The dollar was on offer is Asian and early European dealing today in the wake of yesterday’s dovish FOMC press conference.

Post FOMC we only half-jokingly noted that the whole event could have been summarized by – Powell, I’ll never hike rates again – but that in fact was the reaction of the markets as equities rose and greenback sank on the assumption that the Fed would remain on hold for the foreseeable future.

Perhaps the most dovish comment from Chairman Powell yesterday was his willingness to tolerate hotter inflation should it occur – an implicit admission that Fed would maintain easy monetary conditions even in face of price gains.

Inflation has been a very controversial topic in the US, with many analysts pointing out that the Fed favorite measure of inflation – the PCE index – is a false reading focusing mainly on a basket of commodities and unrepresentative services that do not paint a true picture of the consumer experience who is facing a constant stream of rising healthcare and housing costs.

Be that as it may, the Fed’s monomaniacal focus on easy monetary conditions is designed to support financial assets and lubricate global trade which has been hit by many geopolitical and demand factors.

Little surprise then than the buck buckled in the wake of Mr. Powell’s comments with euro getting the biggest benefit of the move as the single currency rose nearly 100 pips over the past 24 hours.

Today the market will hear from the ECB President Christine Legard as she faces the press for the first time but there are no expectations of new initiatives and Ms. Legarde who is an old hand at dealing with the media will probably be very careful to not make any unforced errors. Overall, she is likely to reaffirm the steady as she goes message and maintain the central banks’ current easing bias without altering plans.

Today is also the UK election, and while Mr. Johnson is heavily favored to win, the question of margin remains an uncertainty. If there is an in unexpected shift to Labor in today’s final results cable is sure come under selling pressure in tomorrow’s trade. Given the recent market dynamics, we may, therefore, be set up for a move upward in EURGBP which would benefit from both the dollar weakness and the pound weakness should Mr. Johnson fall short of his goal,.

Boris Schlossberg
Managing Director

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