- Why has the dollar not profited from stronger data?
- Investors seem to be cautious ahead of the Fed…
- …and there may be some closing of investor positions
Why has the US dollar not profited from stronger data?
We would have expected that the US dollar would have rallied strongly after the strong US employment report last Friday. In fact this was not the case. To begin with investors appear to have taken a more cautious stance towards central bank events after the ECB under-delivered compared to market expectations. As a result, the US dollar has not been able to fully profit from the strong US employment report last Friday. Other currencies and precious metal prices profited, however, temporary from this. The probability of a 25bp Fed rate hike next week has edged higher to almost 80% after the strong US employment report.
Second, it is likely that investors have started to close positions this year. In general, investors have been short euro, long US dollar, short emerging market currencies, short metals and short oil. The perception that we may have seen the move for the year could have triggered the closing some of these positions in currency and commodity markets. However, the drop in oil prices below the previous lows appears to have halted or even reversed this process until after the Fed meeting on 16 December. When the Fed meeting is out of the way, there is a possibility that investors close the books for the year resulting in a recovery of the heavily battered assets this year.