Markets:
- USD leads, GBP lags
- WTI crude oil rose $1.39 to $73.11
- US 10-year yields down 1.6 bps to 4.56%
- Gold rose by $34 to $2,658
- The S&P 500 fell 0.2%.
The US dollar was a strong player to start the new year, it turned out, but I think it was more about movements in capital flows than economic data. Initial jobless claims were lower than expected, a good sign for the US labor market, but this is a holiday-warped week. Figures on construction spending and the latest PMI were slightly softer. Again, I don’t think these were the drivers of the market move. The big driver of the US dollar’s movement today was capital flows, and it was a broad, strong move in the US dollar today.
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Surprisingly, commodity currencies have held up well despite a rough start in Chinese markets, suggesting that capital flows are a key driver. However, oil and gold were strong, proving there is some hope for global growth even without China’s help.
The USD/JPY pair was reluctant to move higher, even with Treasury yields starting lower and then rebounding, possibly due to concerns over a potential intervention or rate hike by the Japanese authorities. That was the 2024 trade, and we’ll see if it happens this year.
The biggest losers were the euro and the pound, which fell by around 1%. The pound was particularly hard hit as rates eased below the December low of 1.2475 and the pair fell another 100 pips from there with barely a bounce. The same thing happened in the euro a little later, as it fell as low as 1.0226 before a 40-point jump.
Both will be under the microscope at the start of the year, but the rush from Europe to the US shows how much of the market is positioned.