ING: The USD - FJElite
While increasing liquidity buy-back operations by $2bn might seem like rearranging deckchairs on the Titanic given the US national debt of $40tr, yesterday's intervention by the US Treasury has been warmly greeted by investors around the world. As ING's Padhraic Garvey writes, this unscheduled announcement tells us the Treasury's displeasure with the recent sell-off at the long end of the bond market. Clearly, a more structural solution such as fiscal consolidation is required for a more sustainable recovery in the bond market, but news that the US Treasury is going to be more vigilant about the long end has been welcomed.
The 10bp drop in longer-dated US yields has lifted equities and seen the dollar soften,
especially against high-beta currencies such as the Norwegian krone, New Zealand dollar and Swedish krona. The Bessent Put - or someone to watch over the US Treasury market - reduces one of the key threats to risk assets this summer and should see carry trade strategies remaining popular. At the same time, the minutes of the July FOMC meeting were not particularly hawkish and short-dated US yields actually fell 5bp after the release. This all leaves the dollar in a flat/lower pattern consistent with a 'Risk-on, Dollar-off investment environment - EMFX typically does well at times like these.
For today, the US data calendar is light, and we will hear from two Federal Reserve hawks: Mary Daly, who voted for a hike in July, and Alberto Musalem, a non-voter. DXY unexpectedly broke down from its 99.40-100.00 range yesterday and can probably drift lower to 98.65. The next stop would be 98.00 should risk assets build another leg higher on this more activist US Treasury.