Pretty good

Insofar as it can be trusted (i.e., not very), today's employment situation report in the US was pretty good all round. Thus far, the bond-currency square has been circled via a stronger dollar, as expected. Whether that sticks is another question entirely, of course. Londoners are fleeing their desks a scant 15 minutes after the release; New Yorkers may not be far behind. Thus, if someone wanted to jam things later today, they could. Whether they choose to do so remains to be seen...
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April 6, 2007 at 3:44 PM ×

what factors, in your view, most explain the dollar's broad weakness v. most things not called the yen (setting today's payroll bounce aside)? have Voldemort $ sales picked? Reduced home bias by US investors (I never quite figured out how a fall in home bias if symmetric would help finance the US)? Less interest in long-term US debt (especially of the kind minted by the mortgage-industrial complex)? Shrinking int. rate differentiuals on the back of stronger expectations for european growth? I certainly haven't seen any slowdown in global reserve growth -- tho we don't yet have data for China.


Macro Man
April 9, 2007 at 10:55 AM ×

While Voldemort's sales have been a constant factor, I don't know that they have intensified as such. I think the best answer here is the simplest: the currency market has responded to the spate of weaker data in the US and strong data elsewhere.

So as subprime has gone tabloid, ISM has dipped below 50, and the Bernanke Fed has farted around with changing its bias and/or communication strategy, you've had rate hikes in Euroland, the UK, Sweden, Norway, Switzerland, New Zealand, and even Japan. More is expected in all of those countries, as well as Australia.

In the US, meanwhile, markets are trying to decide whether the Fed will go in Q3 or Q4.

Overlaying a simply chart of the Dec 07 eurodollar-euribor spread yields a pretty good relationship with the EUR/USD exchange rate over the past six months. It will be interesting to see whether the recent widening of that spread (due to Friday's payroll figure) provides more significant support for the dollar, or whether Voldemort-type activity causes the relationship to break down.