Morning Commentary: Tribute to Paul Volcker

Foreign Exchange - Morning Commentary
Tribute to Paul Volcker
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Global markets were in a mild risk-off mode overnight, but U.S. equity markets are attempting to rally after two positive trade headlines just hit the wires this morning. The first headline comes from the WSJ and regards U.S.-China trade with the potential postponement and delay of U.S. tariffs that were set to increase this Sunday. This is another positive step in de-escalating tensions between the two countries as they move forward to a signing of the Phase 1 trade agreement but had been anticipated.

The other key headline comes from the House of Representatives in that Speaker of the House, Nancy Pelosi, will be holding a second press conference this morning (first on articles of impeachment) on the USMCA agreement at 7:00 am PST. All signs are pointing toward a revised agreement that is now acceptable to Democrats and will lead to a vote on the renegotiated agreement put forth by the Trump Administration. This is good news for all three countries but especially for Mexico, in particular, who has been in an economic recession for most of 2019. The Mexican peso is nearly unchanged on the session after rallying the past five sessions in anticipation of this step forward.

While there has been an initial burst of market optimism, markets in general have been anticipating these two events. With a lot of tier 1 data ahead this week combined with multiple central bank meetings and the U.K. election on Thursday, investors and traders are generally on the sidelines as they await the results of these key events.


Paul Volcker passed away on Sunday. I was just at the early stages of my career when he became Fed Chairman in 1979. The U.S. economy was in one of the worst episodes of its entire history with weak growth and sharply rising inflation near 13%. He intuitively understood the risks of inflation to the overall wellbeing of the economy in the long run and took decisive action to tame inflation pushing short term interest rates near 20% and bringing about a recession.

On numerous occasions and even between FOMC meetings, he raised interest rates at 50 bps clips and even 100 bps at a time to send a strong message that the Fed was adamant about defeating inflation and rescuing the U.S. dollar. His actions and vision proved correct as inflation fell and laid the groundwork for the disinflation that followed lasting multiple decades. In my central bank Hall of Fame, he is a first ballot and unanimous selection for his bold and decisive actions.
  • The British pound (GBP) continues to slowly but steadily march higher ignoring today’s weak economic data as the prospects of a Tory win on Thursday supersede everything else. Zero growth in October, a disappointing industrial production number and a ballooning trade deficit made no impact on the GBP today. Since September 3, the GBP is up over 9%.
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