Dollar Consolidates after Yesterday's Big Gains - BBH
Research Team at BBH, notes that the FOMC minutes came in on the hawkish
side and the statement that “most” Fed officials saw a June hike as
“likely” if warranted by the economy did the trick.
Key Quotes
“Other portions of the minutes were more balanced, but that first
headline was all that the dollar bulls needed. Some officials cited
Brexit and China as risks that need “close monitoring.” We don't think
June hike is a done deal by any means, but markets will have to reassess
the low probability being assigned to a move then.
The US two-year premium over Germany widened by nearly 6 bp yesterday
and is 14 bp wider on the week. It was the biggest advance in a little
more than two months, and at 141 bp, it is at levels not seen since
mid-March. The 2-year UST yield rose 6 bp to 0.89% yesterday, the
highest since mid-March, while the Fed funds futures market saw implied
yields rise across the strip to highs not seen since March.
The dollar is consolidating yesterday's gains. The euro has barely been
able to bounce off its lows just ahead of $1.1200. This is an important
technical area. A break of it may see the euro fall first to $1.1145 on
its way to $1.1070. The greenback's advance above JPY110 is likely to
modify the G7 meeting this weekend. In some important ways, it supports
the US Treasury's argument. Intervention is not necessary. It is not
one-way market. Volatility is not extreme. The markets are fairly
orderly.”
