Dollar foiled again

Summary

The dollar’s failure to regain traction is becoming an eye-catching theme this week.

ECB breaks cover

The euro and the pound have joined the Aussie in wrong-footing dollar bulls by unexpectedly finding their feet, extending the dollar’s soft patch following 6-month highs into a fifth session out of six. ECB forward guidance bursting back on to the scene was key, as policymakers went out of their way to flag next week’s meeting as a possible date to announce the end of QE. The news tipped the balance of sentiment on the single currency higher following mixed reaction to the inaugural speech by Italy’s new Prime Minister, which saw BTP yields inch higher.

BoE speakers lined up

Attention will now also swing on to Bank of England policymakers—with a handful media bookings and speeches scheduled over the next few days—after key economic snapshots for the UK in recent days trounced expectations. The market is now on alert for MPC signals that a rate rise is back on the table, after the Bank’s notorious U-turn in the spring, in the wake of a weak readings, some linked to dire weather. Still, the looming return of the Brexit bill to the House of Commons next week could yet keep monetary commentary cautious with Downing Street’s strategy disintegrating further. The indefinite postponement of a widely trailed document that was meant to clarify the government’s position once and for all, bodes ill for a forthcoming parliamentary vote.

Loonie capped by NAFTA, oil

The greenback was on firmer ground against the Canadian dollar and Mexico’s peso as they remained pressured by persistent signals Washington could dump NAFTA. Trade relations overall continued to deteriorate ahead of the weekend’s G7 summit in Canada, after the U.S. slapped tariffs against North American and European trading partners last week. Canadian trade data and PMI releases due later on Wednesday, could decide how C$ fares for the rest of the week after the White House’s call for higher OPEC reduction capped the loonie further as oil retreat’s quickened.

Dollar slump has limits

Either way, the weak loonie and peso could herald a broader slump by major currencies with yield differentials versus Europe and the UK still solidly favouring the greenback. Next week’s Fed meeting is also coming into view. Since policymakers will offer their latest assessment of whether inflation is quickening fast enough to warrant one more hike than markets fully price, cross-currency appetite may soon abate. Still, the absence of a sustained dollar rebound despite a run of blisteringly strong data—and the obverse for AUD, still advancing after a neutral RBA—suggest persistent short-dollar interest will continue to drag.

Stocks ignore Fed ‘event’ risk for now

Later in the week investors may get warier of possible overexposure heading into Fed ‘event risk’. For the moment though, the stream of firm U.S. economic data continues to encourage global shares to recoup losses sustained last month. Stock index futures projected firm trading across Europe and U.S. stock markets after Asia Pacific markets rose, including 0.4%-0.5% gains for Japan’s Nikkei and Hong Kong’s Hang Seng. The Nasdaq’s record close even whilst the Dow Jones Industrial Average was on the back foot and the broader S&P 500 merely ticked higher, suggests technology stock-led gains could underpin U.S. indices again if the firmer overall backdrop holds in Wednesday’s session