US Dollar: Warsh speech keeps ranges contained – ING
ING’s Chris Turner notes a quiet, risk-positive week for global markets, with low volatility and mixed G10 FX, as the Dollar debasement theme fails to extend. Markets expect little on monetary policy from Fed Chair Kevin Warsh at Jackson Hole, and ING anticipates FX will track long-dated Treasuries, with DXY likely holding a 99.00-99.30 range.
Fed speech, yields and DXY range
"It has been a quiet, risk-positive week for global asset markets. Volatility remains low and the picture in G10 FX has been mixed, with certainly no follow-through on the dollar debasement theme which returned last week. The FX market expects little from Kevin Warsh today, with a one-day USD/JPY straddle pricing around a 35 USD pip range today."
"It may well be that he avoids any discussion of monetary policy whatsoever and is quietly contented with market pricing of a Fed September hike having slipped back to 8/9bp. If he does go near monetary policy, expect a reiteration of a Fed commitment to monetary policy – especially after his performance at the July FOMC unnerved the long-end of the Treasury market."
"We suspect FX markets will take their cue from long-dated US Treasuries today. If somehow a hawkish read emerges, then the dollar can advance against the low-yielders of CHF and JPY. If Warsh underestimates the mood at the long-end of the market and 30-year Treasury yields spike back towards 5.30%, higher volatility will see higher-yielding carry currencies underperform and probably CHF start to outperform again as it did briefly last week."
"Coincidentally, at the time as Warsh is speaking, the Bureau for Labour Statistics announces its annual nonfarm payroll benchmark revisions. Consensus expects a close to +200k revision, versus a prior revision of -911k. Any surprises here could be noteworthy."
"We presume Warsh will do his utmost to avoid upsetting the bond market today – perhaps by avoiding monetary policy altogether – and see DXY trading in a quiet 99.00-99.30 range."
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