8 Jul 2013
Flash: Forward guidance from ECB/BoE to take toll – ANZ
FXstreet.com (New York) - According to Brian Martin at ANZ, “The market is pushing aside any contrarian USD arguments and focusing on the relativity of central bank forward guidance as the key dynamic in currency markets at present.”
In addition, “the dollar has appreciated as a result and the prevailing expectation is that it will continue to do so. Price action clearly implies that a strong balance of opinion believes the nascent stage of forward guidance by the ECB and BoE means that the euro and GBP should weaken. The market will be very sensitive to data releases in how it trades.” Martin adds.
Since the mid-June FOMC meeting and owing to the relative shifts in forward guidance by major central banks since then, there is a growing belief that the dollar will rally further. “Current and expected favorable relative growth and interest rate differentials in the US are underpinning this view and the June labor market data added weight to that.” Martin notes. The US bond market has been under severe downward pressure, which has dragged yields higher globally. From a relative business cycle perspective, the strength in the dollar seems justified based on US developments.
In addition, “the dollar has appreciated as a result and the prevailing expectation is that it will continue to do so. Price action clearly implies that a strong balance of opinion believes the nascent stage of forward guidance by the ECB and BoE means that the euro and GBP should weaken. The market will be very sensitive to data releases in how it trades.” Martin adds.
Since the mid-June FOMC meeting and owing to the relative shifts in forward guidance by major central banks since then, there is a growing belief that the dollar will rally further. “Current and expected favorable relative growth and interest rate differentials in the US are underpinning this view and the June labor market data added weight to that.” Martin notes. The US bond market has been under severe downward pressure, which has dragged yields higher globally. From a relative business cycle perspective, the strength in the dollar seems justified based on US developments.