Well, the greenback got no respite to start the week.
As noted on Sunday evening in our week ahead preview (DACA Schoen), the dollar is in deep shit. Recall the following annotated chart which documents the greenback’s recent trials and tribulations coming off the worst year since 2003:
Between the hawkish ECB minutes and the BoJ’s paring back 10-25Y JGB purchases, the policy convergence narrative is back in play and now, the threat of a government shutdown (also discussed at length in the post linked above) looks to be rubbing salt in the wound.
“We’ve been here before in recent years and yet the market still seems to be fretting, despite the U.S. managing to get itself out of tight spots related to funding in September last year and in 2013,” Bloomberg’s Paul Dobson wrote this morning, before adding that according to Credit Agricole’s Valentin Marinov, the shutdown threat is exacerbating market angst tied to other “bearish threads including lingering concern about potential U.S. trade protectionism and the Trump administration’s preference of a weaker dollar.” The dollar is lower against all G10 peers.
Meanwhile, the euro rose a fourth day on optimism about the economy and speculation that the ECB will end APP in September as opposed to extending it through year-end. Helping the common currency on Monday were comments from the ECB’s Ardo Hansson, who told Boersen-Zeitung that for the time being, a stronger euro poses no threat to the inflation outlook.
The ECB, he continued, can end purchases in one step with no problem. Famous last words Ardo, famous last words.
Whatever the case, the euro is up for a fourth consecutive day:
And is now sitting at its strongest versus the dollar since 2014:
Keep in mind that if this continues apace, it will weigh on European equities and you’ve got to think that Hansson’s comments notwithstanding, the ECB will not risk getting aggressively hawkish against a backdrop where the euro is appreciating rapidly.
