A Sea of Red

Currency markets felt the force once again of a strong dollar yesterday as cable and eurodollar sustained further losses in yesterday’s price action. Over the past month, we have seen cable lose more than 6% on the dollar and the eurodollar lose more than 4% against the greenback. If your next question is why, here’s a possible reason.

As investors have begun weighing the opportunity cost of holding risk assets as the Fed reduces its balance sheet, the obvious move has led to a sell-off in equities moving positions over into cash. As investors move into cash positions this creates a higher demand for the dollar to strengthen against major G-7 currency pairs. Besides a shift in risk analysts and investors pricing in an aggressive Fed monetary policy plan for the rest of the year puts the dollar in a prime position against other counterparties. Lastly, over the past week, corporate earnings in the U.S have been released coming in lower than expected adding to the pressure that markets are feeling.

Looking ahead today we have a speech from ECB President Lagarde and U.S data later this afternoon. A mute week ahead once as aforementioned but still a week where rates can continue to get underpinned by the dollar.