Price action in markets deprived of tier-one macro data over the Christmas periods has centred on acute volatility in equities, including the US. This roller-coaster in equity markets has so far had only a limited impact on major currencies.
The Dollar is down about 0.5% in trade-weighted terms since Monday as are the more risk-sensitive Australian and Kiwi Dollars. Sterling has shed 0.2%. The Euro has inched about 0.3% higher and the “safe-haven” Swiss Franc has appreciated 0.5%.
Dollar
The S&P 500 had weakened over 5% in the three sessions to 21st December, with concerns over the partial shutdown of the US government announced on 22nd December. This prompted US Treasury Secretary Mnuchin to announce on 23rd December that he had met with the CEOs of the six largest US banks and that liquidity was not an in issue.
This arguably unusual intervention did little to sooth markets, particularly as President Trump on 24th December renewed his verbal attack on the Federal Reserve and its decision to hike rates. The S&P 500 weakened a further 2.7% on 24th December before surging 5% on 26th December and nearly 1% on 27th December, despite the US Consumer Confidence Index falling further in December. As of writing US equities are trading sideways.
Euro
The Euro has made small gains this week, with the EUR/USD cross at a 2-month high despite the release of data showing that German headline CPI-inflation had collapsed to 1.7% yoy in December from 2.3% yoy in November. Inflationary pressures in the Eurozone’s largest economy remain modest as does economic growth which could in time raise questions about the judiciousness of the ECB’s decision to end its QE asset purchases this month.
