Overview
Today’s European session began with the USD continuing to soar, in the trend seen since Friday’s Nonfarm Payroll report. Both the Asia and the European session saw the USD index print fresh 11 1/2-year highs, with EUR/USD continuing to weaken and making a break below the 1.0800 handle to touch its lowest level since September 2003. The greenback strength also saw USD/JPY reach its highest level since July 2007 to break above the 122.00 handle overnight, after breaching long-term resistance at the 7th December high of 121.85. However the USD index pulled off its highs during the European afternoon as a consequence of interest differential flows, seeing USD/JPY breaking back below 122.00 and drifting back towards the 121.00 handle. Furthermore, appetite for USD was also somewhat dampened by comments from White House economic adviser Furman who warned of potential headwinds for the US economy as a result of the stronger USD.
Emerging markets currencies also continued their recent drift lower against the USD during today’s session with focus on Fed rate lift-off continuing to gather momentum. Recent Fed speakers have had a hawkish slant, with Fed's Mester reiterating she is comfortable with first Fed rate hike in H1 2015 aftermarket yesterday along with Fed’s Fisher repeating his preference to hike rates early and gradually, adding that he trusts Fed Chair Yellen will not wait too long.
This divergence in central-bank rhetoric and policy has seen the likes of the TRY weaken against the USD, with the Turkish president set to meet the head of country’s central bank tomorrow in order to discuss monetary policy. Commodity currencies had also come under pressure today after the strong USD weighed on energy and metals with NOK/USD reaching 12-year lows, although when the USD came off its highs in the European afternoon, the likes of AUD and CAD pared back much of their losses alongside the pick-up in gold and silver prices. However, energy-related currencies were unable to benefit fully from the softer USD with energy prices weighed on by the latest rhetoric from OPEC suggesting the June meeting will see the cartel roll-over their existing policy.
Looking ahead, tomorrow’s session sees the release of UK Manufacturing Production and a host of speakers, including ECB’s Draghi (Dove), Praet (Neutral), Liikanen (Neutral), Nowotny (Hawk) and Honohan (Dove) as well as BoE’s Weale (Soft Hawk) and RBNZ’s Governor Wheeler.