The Dollar benefits slightly from American exceptionalism. Kit Juckes, chief currency strategist at Société Générale, discusses the outlook for currency markets.
Correlation between currencies and rate differentials remains surprisingly strong
For yet another week, US data has started strongly: the ISM services index and the employment index, worryingly weak a month ago, have recovered. American exceptionalism is in fine form. Meanwhile, another Wednesday means another dismal report on German industrial production. It was sunny in Munich and rainy in Frankfurt, but the pessimism about the economic prospects is the same in both cities.
In the currency market, all of this translates into a slightly stronger dollar, but the correlation between currencies and rate differentials is still surprisingly strong, so if strong data doesn't move Fed expectations much, it won't. They will have as big an impact on currencies as they would otherwise.
US yields have risen somewhat more in the last week than European yields, and EUR/USD has fallen, but not as drastically. If we keep an eye on rates, the medium-term question remains whether the Fed eases more than the ECB, rather than the strength of the US economy.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
