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Greenback Remains Firm Ahead Of Jobs, JGBs Stabilize, Italian Debt Moves Into Spotlight

Marc Chandler profile picture
Marc Chandler


  • Policy mix and divergence offer a better explanation for the dollar's strength than safe-haven demand related to the trade tensions the US has caused.
  • Barring a significant surprise, the US employment data is unlikely to drive FX prices or yields.
  • The euro has risen each of the last seven Fridays and DXY has fallen in a similar streak.  Will the pattern break today?

With the US threatening to escalate the trade conflict with China, many observers are trying to link it to the dollar's strength. Trade wars are not only easy to win, as President Trump has declared, but it is also good for the dollar, we are told. But is it really?

If it is a safe haven, then gold ought to be firmer, but it is sitting at its lowest level in a year. The S&P 500 posted on the bullish outside up-day yesterday, closing at a five-day high and poised to challenge the record high. It is true that emerging market equities are under pressure, after trending higher in July. The MSCI Emerging Markets Index has retraced 61.8% of last month's bounce that peaked on July 26.

This is also ad hocery. It seems that a different narrative is constructed to explain every wiggle in the foreign exchange market, where in the name of efficiency, the largest pair, the euro-dollar exchange rate, is often traded in thousandths of a penny. The difference between JPY111.00 and JPY111.01 is about 100,000th of a cent.

Exactly, why US-inspired trade tensions would be good for the dollar is not exactly explained. Alternatively, consider what has happened over the past week. The ECB affirmed no intention on hiking rates for a year. The BOE hiked rates but said a hike a year is just about the right pace. Japan tweaked its programs not to taper them, which is a way to gradually bring the program to an end, but to extend them indefinitely by trying to minimize the undesirable side effects.

In the US, high-level discussions are underway within the Republican Party for a second round of tax cuts, which would include making the middle-class tax cuts permanent. Other reports indicate that the White House

This article was written by

Marc Chandler profile picture
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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