USD: Post-election premium over fair value may decline – Scotiabank

The US Dollar (USD) is trading a little weaker overall in quiet trading. Overnight news is relatively limited and the softer USD tone rather reflects the drop in US yields seen yesterday, a modest relief rally for the EUR and some JPY gains due to mixed/slightly line comments BoJ’s Nakamura hawk last night, notes Shaun Osborne, Chief FX Strategist at Scotiabank.

USD mixed to a little weaker

“The policymaker, who is on the more moderate side of the board, expressed some doubts about the sustainability of wage gains in Japan, but also stated that he was not opposed to a rate hike. The assessment for the meeting of the Dec. 19 increased marginally again to reflect 9-10 basis points of expected tightening. Japan releases Labor Cash Earnings and Household Spending data tonight.”

“Fed Chairman Powell commented yesterday that the Fed was ‘not quite there’ on inflation and that policymakers can afford to be “cautious” as the Fed tries to find neutrality. The comments sparked an uproar. very minor and short-lived rally in December FOMC swaps, but had little impact on the USD Markets continue to price in 18-19 basis point easing risk for this month’s Fed decision NFP data. of “U.S. data on Friday may be more formative for the market’s thinking on the rate outlook.”

“Technical trends in the DXY are a little weaker today. The charts show the DXY leaning a little more on the uptrend support (106.06) that has guided the market high during the fourth quarter so far. Loss of support here may take the index lower to test the key short-term support at 105.35 The index has traded at a slightly higher premium compared to the spread-based value since the election; DXY currently stands at 104.67. Today’s US data reports include Weekly Trade and Claims Fed’s Barkin talks on outlook at 12.15ET.”