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Clarida’s Confessions:
The Dollar continued its rampant appreciation this morning following the testimony of the Federal Reserve’s Vice Chairman, Richard Clarida. In the first major speech of his appointment, the American economist sided with further US monetary policy tightening. The Vice Chair did not appear concerned by equity market evolutions in the previous weeks despite the aggressive admonitions and deriding comments by President Trump. The Chair and Vice Chair of the Fed appear to be wholly aligned, paving the way towards less accommodative monetary policy that promises to afford the Dollar greater value. The Vice Chair also followed his premier Jay Powell in distancing the Federal Reserve from politics and the White House maintaining that the Fed’s only “job is to sustain what is a very healthy and robust economy”. US Gross Domestic Product data released this afternoon for the third quarter of 2018 surprised to the upside. The recording came in at an annualised 3.5% versus consensus expectations of 3.3%. The reading did, however, still underwhelm the previous figure of 4.2% growth. The data is also used to produce a GDP deflator, a proxy or alternative statistic for the more popular measure of inflation, the Consumer Price Index. This figure surprised to the downside, underwhelming market expectations by a whole 0.4%, causing a sell off in the Dollar throughout the afternoon. Given the principal and superior importance of inflation to monetary instruments and interest rates, this statistic overwhelmed the market effect of the more popular growth measure. Cable recovered from lows of 1.2775 to comfortably trade within the 1.28s at market close. The Euro was also able to recover pivotal ground above 1.14, surpassing important resistance.
Discussion and Analysis by Charles Porter
Holding on With less than a 10% probability of a cut priced into the Reserve Bank of Australia’s (RBA) latest monetary policy decision, it is unsurprising markets open today to news of a hold. The RBA adopted a lower peak rate of benchmark interest than the likes of the UK and USA with lower inflationary […]
Now that’s what I call Tariffs The title of this briefing is an homage to that (n)ever-popular publication of CDs (formerly vinyl) that seemed to be everywhere when I was growing up. Containing the ‘best’ hits of a particular year, you never seemed to be far from a ‘now that’s what I call’ CD (or […]
What is the Mar-a-Lago Accord, and should markets care? At heart, the Mar-a-Lago Accord is a proposal for President Trump to weaken the US Dollar. As we know, Trump’s typical deregulatory and risk-inducing persuasion would, all other things equal, increase demand for the US Dollar. As far as the relationship between perceived risk and the […]