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5 Jul 2013
Flash: Dollar underpinned – BBH
FXstreet.com (London) - BBH Global Currency Strategy Team noted that the US employment data came out on the strong side of expectations.
The economy added a net 195k jobs in June and the back months saw a combined 70k upward revision. In addition, the increase in hourly earnings of 0.4% will underpin expectations for an increase in both income and consumption. They said it also creates the impression that the US economy finished Q2 with some momentum, which bodes well for Q3 GDP.
They explained that the jobs data will strengthen expectations of tapering Fed asset purchases, but they still think the talk of a move later this month is pre-mature. “US yields are rising sharply in the aftermath of the jobs report, with the 10-year yield up nearly 20 bp to 2.68%. Looking at the Fed funds and Eurodollar futures curve, the market perceives an increased likelihood of a late 2014 hike in the Fed funds rate, which is completely discounted by early 2015.”
The team went onto say, this, of course, stands in stark contrast with the signals sent yesterday by the BOE and the ECB. In addition, they noted the BOJ continues to be committed to its QE, which is only three months old this week. “This resulting divergence in monetary policy between the Fed and other major countries is helping underpin the dollar”.
The economy added a net 195k jobs in June and the back months saw a combined 70k upward revision. In addition, the increase in hourly earnings of 0.4% will underpin expectations for an increase in both income and consumption. They said it also creates the impression that the US economy finished Q2 with some momentum, which bodes well for Q3 GDP.
They explained that the jobs data will strengthen expectations of tapering Fed asset purchases, but they still think the talk of a move later this month is pre-mature. “US yields are rising sharply in the aftermath of the jobs report, with the 10-year yield up nearly 20 bp to 2.68%. Looking at the Fed funds and Eurodollar futures curve, the market perceives an increased likelihood of a late 2014 hike in the Fed funds rate, which is completely discounted by early 2015.”
The team went onto say, this, of course, stands in stark contrast with the signals sent yesterday by the BOE and the ECB. In addition, they noted the BOJ continues to be committed to its QE, which is only three months old this week. “This resulting divergence in monetary policy between the Fed and other major countries is helping underpin the dollar”.