Friday, January 19, 2018

"Dollar Crushed as Government Shutdown Looms"

From Marc to Market:
The US dollar is broadly lower as the momentum feeds on itself. Asia is leading the way. The Japanese yen, Taiwanese dollar, Malaysian Ringgit, and South Korean won are all around 0.45% higher. Asian shares also managed to shrug off the weakness seen in the US yesterday. The MSCI Asia Pacific Index advanced 0.7%. It is the sixth consecutive weekly gain. The dollar's drop comes as US yields reach levels now seen in year. The 10-year yield is at its highest level seen 2014, while yields from bills to three-year paper are at their highest level since 2008.

The risk of a US government shutdown beginning tomorrow may be providing the latest fodder for the dollar's sell-off. The Dollar Index is set to post its fifth consecutive weekly loss, the longest drop since April-May 2015. The House of Representatives voted to extend the spending authorization for a month (Feb 16), but the Senate is balking. The Democrats in the Senate, whose votes are needed, unlike tax cuts, Many Democrats in the Senate want a deal on the adults that were brought by their families illegally as children.

The dollar bears have not only pushed aside the rise in US interest rates but also economic data that suggests the US economy accelerated in Q4 17 (initial estimate will be reported next week). In addition, even disappointment, like the UK's retail sales report today, has failed to stem the greenback's slide. December retail sales fell a sharp 1.5%, the latest drop since mid-2016, and 1.6% excluding gasoline. The median expectation was for a 1.0% decline after a strong 1.1% and 1.2% rise respectively. Those November gains were revised lower by 0.1%. Household goods purchases fell 5.3%, while clothing was off 1%. The average monthly change in Q4 was zero, after 0.2% in Q3 and 0.4% in Q2.

Sterling softened on the news, but only after it made a new high since the UK referendum (~$1.3945) and it remained above $1.39. It has not had a losing session against the dollar since January 1. This is the third week it is rising on a trade-weighted basis as well.

The euro is knocking on $1.24 after having fallen to $1.2165 yesterday. The high from the middle of the week was nearly $1.2325. European assets markets are firm. The Dow Jones Stoxx 600 is up 0.45%, showing resilience in the face of yesterday's losses in North American. It is up in each of the three weeks of the new year. European bonds are mixed, but the peripheral yields are two-three basis points lower. Italy is lagging a bit, as the March election deters some investors....


Here's the last year of the Dollar Index (DXY). A trend appears to be emerging.