Maybe the dollar rally late Thursday had nothing to do with politics, maybe it was an obscure fundamental headline, or flows or a fat finger in cable that morphed into a broad USD bid. 5 straight daily declines in the currency of the world's strongest economy may have a been excessive. Any of that would be a comforting explanation because the alternative is that an Infowars/Zerohedge fake news story was responsible for the move, and that would mean that markets have now been enveloped by the post-truth world.
The US dollar was the top performer while the New Zealand dollar lagged. The Asia-Pacific calendar is light. Above is the chart of strongest and weakest currencies vs the USD since the start of the year and the month.
There has been a push-and-pull between politics and fundamentals since the election but fundamentals were winning out. On Wednesday, however, politics took over and it continued Thursday. It started with a gotcha story from Reuters saying Trump's campaign team had at least 16 more undisclosed contacts with Kremlin associates. That set off a round of risk aversion but it slowly faded because the story indicated that the calls were about the kind of things that politicians should be discussing– China, general relations and North Korea.
Skip ahead a few hours and the Infowars/ZeroHedge story begins to circulate. The headlines stated Comey had indicated no one had tried to pressure him to end an investigation on May 3. At the same time, cable flash crashed 100 pips, the dollar started to catch a broad bid and stocks rallied.
Delving deeper the actual clip, Comey was asked if anyone at the Department of Justice had asked the FBI to end an investigation. He wasn't talking about the White House.
It's unfair to lump Reuters with the other sources but the effects were the same. That says something profound about markets.
Untruth is nothing new to markets. There is always a rumour about a corporate takeover or bankruptcy but when you chase a rumour and it's wrong, you're punished. With political rumours it doesn't matter if they turn out to be true or false.
We're confident that fundamentals will ultimately win out – they always do. In the meantime, we're all stuck reading fringe political websites trying to figure out what the average voter will believe is true and false.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
AUD/USD jumps above 0.6500 after hot Australian CPI data
AUD/USD extended gains and recaptured 0.6500 in Asian trading, following the release of hotter-than-expected Australian inflation data. The Australian CPI rose 1% in QoQ in Q1 against 0.8% forecast, providing extra legs to the Australian Dollar upside.
USD/JPY hangs near 34-year high at 154.88 as intervention risks loom
USD/JPY is sitting at a multi-decade high of 154.88 reached on Tuesday. Traders refrain from placing fresh bets on the pair as Japan's FX intervention risks loom. Broad US Dollar weakness also caps the upside in the major. US Durable Goods data are next on tap.
Gold price cautious despite weaker US Dollar and falling US yields
Gold retreats modestly after failing to sustain gains despite fall in US Treasury yields, weaker US Dollar. XAU/USD struggles to capitalize following release of weaker-than-expected S&P Global PMIs, fueling speculation about potential Fed rate cuts.
Crypto community reacts as BRICS considers launching stablecoin for international trade settlement
BRICS is intensifying efforts to reduce its reliance on the US dollar after plans for its stablecoin effort surfaced online on Tuesday. Most people expect the stablecoin to be backed by gold, considering BRICS nations have been accumulating large holdings of the commodity.
US versus the Eurozone: Inflation divergence causes monetary desynchronization
Historically there is a very close correlation between changes in US Treasury yields and German Bund yields. This is relevant at the current juncture, considering that the recent hawkish twist in the tone of the Fed might continue to push US long-term interest rates higher and put upward pressure on bond yields in the Eurozone.