The US dollar is largely steady, having trouble extending yesterday's recovery but not giving much back either. The Australian dollar is a notable exception, boosted by hawkish guidance from the central bank. This has strengthened market conviction for additional rate hikes.
The re-opening of Japanese markets has coincided with a somewhat softer yen. The greenback's broader recovery may have helped Japanese officials avoid a difficult situation. Unilateral intervention has a poor track record and the bar to coordinated intervention seems well above prevailing conditions.
The UK reported stronger than expected producer prices. That is not the focus. The key take away this week is the much softer than expected PMI reports. Despite today's data, for example, the short-sterling futues strip implies lower rates. Sterling firmer tone is part of the consolidation tone in the fx market.
ECB officials are trying to correct market interpretation of Trichet's comments, but officials miss the point. Most continue to recognize the likelihood of a July rate hike. The seeming over-reaction was really a question of market positioning, given extended trends,
Interestingly a German paper is reporting that German Chancellor Merkel favors Draghi for IMF head to replace Strauss-Khan, but is reluctant to support him as ECB head due to Italy's debt problems. Following the French support for Draghi, I thought the politically savvy Merkel would see it as an opportunity to secure another concession from the euro zone or France in particular (no first mover advantage there). It is not immediately clear whether the press report reflects this tactic or whether this is principle. I have been surprised by the fait accompli that officials have seemed to deliver to Germany. While there is no doubt about Draghi's anti-inflation resolve and capabilities, there are other issues, including the balance sought given that a southerner (Portugal) has the vice presidency; there is also concern about Draghi's role in Goldman Sachs and the derivatives it sold to "conceal" sovereign debt, and the issue of Italian debt. Some observers have taken that last point and tried to make it into a virtue on ideas that a head from a indebted country is in a better position to urge fiscal restraint on others. It was always a stretch and Merkel apparently is focusing on that.
US jobs data is the main feature. I suspect a weaker than consensus report, but I am not sure how negative it is for the dollar as the market is in correcitve mode. So even if the foreign currencies pop on a weaker than expected report, I suspect that the correction may persist a bit longer and that means that I expect participants to sell into that bounce in the foreign currencies. A move a $1.46 in the euro would be of note and it would liekly signal at least another cent advance. On the downside, a close below $1.45 would also be noteworthy and raise confidence of additional dollar gains at the start of the week.
Dollar Consolidates Yesterday's Gains
Reviewed by Marc Chandler
on
May 06, 2011
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