The dollar held steady or gained against all of its G10 counterparts in what looked like profit-taking in some currencies that have had big moves recently. NZD and AUD were the biggest losers, falling during Asian trading along with Asian stocks and failing to recover in Europe despite almost all major European stock markets trading higher. USD/NOK was also higher. But it was not a risk-off trade as USD/JPY moved higher as did USD/CHF and EUR/CHF. Gold and silver fell.
EUR/USD was effectively unchanged from early European levels after the Ifo business climate index rose slightly in September but missed estimates (107.7 from 107.6 in August, but below estimates of 108.0). The current assessment index even fell to 111.4 from 112.0 (the market had been looking for a rise to 112.5).
The dollar’s continued recovery today contrasts with movements in the rates market. Fed Funds rate expectations are down a basis point or two across the curve today and the 10yr Treasury yield is down 2 bps. The divergence suggests that growth and asset price expectations may be driving USD rather than monetary policy. In that case, the delay in tapering off QE, which should be supportive of the US economy and US stocks, could prove supportive of the dollar as well. In that case, buying the commodity currencies against JPY or EUR could prove a better strategy than vs USD. Of course, all that will come to naught if the US government can’t pass a budget in the next few days…