‘Fed speak’ is alive and kicking, in fact it’s starting to really push the USD about with bond yields stabilising over the past 2 weeks.
Here is a breakdown of the 6 Fed speakers from last week that show there are divergences forming on the Board and this will start to impact trade.
1. Federal Reserve Vice Chair Richard Clarida stated in his speech that: the economy still has a long way to go before the pandemic’s damage is repaired. That it was premature to discuss the tapering of its QE programs. Not concerned about short term inflation. Played down risks that the rise in prices this year are structural not transitory. Baseline view is inflation will be being around 2% caveat was ‘vigilance was required’ Dovish.
2. Boston Fed president Eric Rosengren: price increases will be temporary, that inflation expectations look stable. Dovish
3. Chicago Fed president Charles Evans’ policy will be on hold for some time. That he is [not] in a hurry in any way to start talking about tapering nor does he know when tapering will take place. Believes the Fed is very patient with its stimulative policies, not complacent. Very attentive about the inflationary implications for the job market. Dovish
4. Cleveland Fed president Loretta Mester: Optimistic about the current state of affairs. Outlook is bright, with the caveat that risks remain from COVID. Believes inflation will exceed 2% before easing back in 2022. Stated that the increase in inflation is
desirable, but price increases are not sustainable enough to be moving on rates (yet). Neutral
5. Dallas Fed president Robert Kaplan: tapering discussions should at least start this year. Doesn’t believe it will be the June meeting but believes it should be least before September adding it will be a discussion. ‘Less confident’ that inflation is ‘transitory’, expects higher inflation but believes it should moderate to about 2.25% in 2022. Worries about excess risk taking. Hawk
6. San Francisco Fed president Mary Daly: ‘Economy is a long way from climbing out of the COVID hole’. Believes policy stance is ‘perfect’. Believes we are long way from reaching the jobs and price goals. Stated that a little inflation would be good but expects pressures to be transitory. Very Dovish
Conclusions from last week’s fed speak inflation is rising as is growth – that is a dollar positive even though most have a dovish view.
Interestingly enough EUR/USD has backed right off the $1.21 handle to be at $1.205 and pushing lower.
GBP/USD holding at $1.39 but is finding resistance at $1.397 and is failing on momentum and on volume.
USD/JPY is back in a tight range of ¥108.50 to ¥109.50 at 109.20 pretty neutral needs a catalyst.
Commodity currencies are bucking the trend of the USD positive move – AUD/USD was up to $0.7745 but eased on news China is cutting off all economic dialogs. The caveat is copper and iron ore are making new records which is pushing on commodity currencies.