Market News & Insights
1 December 2016

Dollar In Demand, Can it last?

It was a volatile session through much of yesterday, month end positioning and re-balancing flows saw notable volatility in FX markets, GBP remained on its roller-coaster ride, while the USD has its best daily performance of the week, erasing almost all its losses for the last 4 days. There was also major focus on an OPEC meeting where major oil producers agreed to cut output in a last ditch bid to try and support prices, allowing the commodity to rally, which in turn provided a major boost to risk appetite. All OPEC producers agreed to cut oil production to 32.5 million barrels a day, with non OPEC member Russia also agreeing to scale back output. Needless to say, the result was soaring oil prices, which in turn supported energy and bank stocks. In Europe stocks closed the day higher, to end the month in positive territory, however later into the US session we saw some weakness feed through despite the Dow and S&P both posting record intraday highs. JPY was under pressure through much of yesterday. USDJPY pressed to 8.5 month highs and overnight the weaker Yen supported a Firmer Nikkei.

The USD strengthened throughout the day yesterday covering much of the week’s losses, a firmer ADP employment report posting 216k jobs vs 170k has raised hoped for a firmer NFP on Friday, while supportive comments from the Feds Kaplan saw US treasury yields press towards 2016 highs and thus supporting USD demand. The greenback is slightly weaker this morning but we’ve seen less momentum in markets this morning as December begins. Once again Fed speakers highlight the day for the US, and several key data points including jobless claims and the ISM manufacturing report as well. USD remains well supported for now and rate hikes in December are fully expected, but with the economy now growing at 3%, and forecast for 2.6% next year, can that growth be expected with a further three rate hikes next year (as market pricing suggests)? For now USD continues to trade at the highs but with the FOMC fast approaching, any sign the Fed disagree with several hikes next year, could see some rapid USD selling.