A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
It’s All about Interest Rates
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David Atkinson Foreign Exchange Sales Manager
North American markets open the week relatively unchanged from Friday’s closing levels. The major factors that have been evident over the past several sessions continue to dominate the backdrop as the week kicks off. The dollar remains under modest pressure as losses extending back to the last day of March take the dollar index back to levels not seen since the first days of March. What’s the reason for the dollar’s decline? Quite simply, U.S. yields have declined after a sharp runup, which adds to a risk on attitude within the market. The major U.S. equity markets are at, or near, record highs as market participants await further signs of strong economic recovery. On a personal note, I was at LAX last night at 10, and the traffic was incredible. Concerns over the COVID-19 virus seem to be taking a back seat. For the time being, the risk on approach of the market, which typically is not favorable to the dollar, will reign until the market sees reason for U.S. rates to follow the encouraging economic data higher.
Much of this week’s activity will center on the conclusion of the Federal Reserve’s Federal Open Market Committee’s two-day meeting, which takes place on Tuesday and Wednesday. As has become commonplace, market participants will closely scrutinize the accompanying statement for any indication that the policy-setting board will be considering a pullback from the accommodative monetary policies that have been the rule for the past year. The week is also heavy in terms of the corporate reporting season. Positive corporate results will probably reflect robust numbers on the back of sizable first quarter gross domestic product figures; expectations are calling for near 7% annualized growth for the U.S. when reported later this week.
On the COVID-19 front, the news is mixed, which speaks volumes for the uneven global recovery. Rates of infection and hospitalization in much of the developed world are declining, only to be met by surging numbers particularly noted in India and Brazil. Over the past three days, India has reported one million new cases of the virus, which obviously stresses the nation’s medical infrastructure. The U.S. has now joined greater Europe in pledging assistance to India at this critical time.
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