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Intraday Comment 19/12/2013

High-beta currencies rally along with European stocks

The high-beta G10 currencies rallied along with European stock markets Thursday, sending the dollar lower compared to its opening levels against SEK, NOK, AUD and NZD. The dollar also lost ground against EUR as well. The Fed’s decision to extend its forward guidance has given a boost to those currencies with a relatively high correlation to stock markets. The dollar was virtually unchanged vs GBP however, which was odd considering that UK retail sales for November were relatively good: retail sales excluding autos were up 0.4% mom, beating estimates of a 0.3% mom rise and confirming that the country’s consumer-led recovery is continuing unabated. One reason may that Bank of England Monetary Policy Committee member Ian McCafferty said earlier in the day that there will be no sudden increase in interest rates next year even if unemployment falls below 7%, the level that BoE Gov. Carney has specified would be the “threshold” for reevaluating the Bank’s forward guidance on rates. British and US monetary policy are looking increasingly similar. And just as the pound has rallied steadily as investors brought forward their view on when the BoE would begin reevaluating its monetary policy, so too do I expect the dollar to rise in 2014 as the US unemployment rate comes down and investors reevaluate their expectations for the Fed’s next move.



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