USD Strong All Around - BBH
Research Team at BBH, notes that the US dollar is rising against all the major currencies today.
Key Quotes
“The Australian dollar is retracing a sufficient part of its recent
gains to suggest that the current phase of the US dollar's recovery is
not over. Given that the Aussie topped out a week before the other major
currencies, it is reasonable that this is where the US dollar begins
recovering first. AUD’s recent resilience was noted, but that has
evaporated today with a 0.6% drop in early European activity.
We had noted the divergence between what appeared to a constructive
technical condition and interest rate markets that were largely
unchanged. The recent price action is providing more interest rate
support for the dollar. Specifically, consider the Fed funds futures
strip. The August contract can be used to calculate the odds of a June
or July rate hike. The implied yield has risen 3 bp this week. It may
not sound like much, but it is the difference between almost a 25% and
36% chance.
The December contract is also interesting. The yield has risen 6 bp this
week. The implied yield now stands at 58 bp. If the Fed did not raise
interest rates until December 14, fair value for the December contract
is about 51 bp. The market has moved to discount one 25 bp move and
about a third of another move.”
