Running Markets – What is Happening With USD ?

USD strength or USD weakness ?

The USD fell against 18 of 21 major currencies since last Friday and the release of a better than expected non farm payrolls number. High beta currencies mostly rallied except for a handful, notably the IDR and Argentine peso. In fact we are seeing KRW at a 2 year high today and CNY at a new 20 year high.


The new EM strategy :
No more carry trades of buying higher yielding currencies over the low yielders.
Investors have broken this trend and now favor current account surplus countries instead.

I find it odd because Indonesia is bearing the brunt of it again even as the India and Thailand etc. look pretty awful and let’s not mention the UK.

Even with rather hawkish Fed speakers last night, the USD failed to gain ground except against the JPY.

“–    Bullard, 2013 voting, swing voter floated the idea of a “small taper” that “might recognize labor market improvement while still providing the Fed to opportunity to monitor inflation during the first half of 2014.” He added that the bond market was the “best candidate” for a bubble.
–    Lacker, non-voter, hawk said that he was never a supporter of the current QE program, which is no surprise. He favors a telegraphed path for tapering.
–    Fisher, 2014 voter, hawk reiterated his view that tapering should begin as early as possible, according to a clearly defined calendar. Fisher will speak again at 18:30 EST/23:30 London time on Monday in the US – this will be the last speech from a Fed member before the pre-FOMC blackout period begins at midnight (5:00 London time, Tuesday).” source : Citi FX

Thus it would appear that the market has already fully factored in the expectations of a Taper, with most houses calling the likely dates in Jan or Feb next year whilst the odds of a Dec taper has risen.

I am drawing some conclusions from the behaviour of the USD, 10Y UST and the S&P 500.


1. Better economic outlook = higher bond yields and higher equities
2. USD strength no longer signals any risk on or risk off behaviour
3. USD has potentially become a safe haven play favoured over Gold
4. EUR appears to have become the risk on/risk off indicator

At this rate, we are looking at another leg up in the 10Y yields with the S&P 500 at a new historic high.

But if you ask me about the rest, I really cannot make head or tail of what’s happening with the EURJPY and GBP et al.  It is not like both the ECB and BOE are even hinting of rate hikes unlike the Fed’s taper promise.

The spirit of the season : Carney’s Speech

“For the first time in a long time it seems reasonable to expect the hopes and dreams of the holiday season to be fulfilled in the UK economy ……..The Ghost of Christmas is a cheerful sprit” but “The Ghost of Christmas Past should not be forgotten. A recovery may be gaining pace but our economies are a long way from normal…The Ghost of Christmas Yet to Come suggests that it is unlikely that equilibrium interest rates will return to historically normal levels any time soon.

The USD story is probably not over yet.

Net worth of US households is exploding yet again and Americans are richer than ever before.


So if you put a gun to my head, I would expect the USD will probably see a revival soon. Not, unless, and I mean unless, the S&P finds a reason to crash ?