U.S. Dollar, Bond Yields Continue to Climb in Post-Election Environment

Euro Extends Losing Streak Against the Dollar  The euro fell versus the US dollar again on Friday, marking a record tenth consecutive day of losses as it posted a 0.2% decrease to finish below $1.06 per euro.  While technicals may point towards a recovery for the euro, there is a high degree of uncertainty expected near term for the currency with events such as an upcoming Italian Referendum on December 4th and the potential for increased monetary stimulus from the ECB.  The US dollar also continued its rally against the Japanese yen, gaining an additional 0.6% to 110.75 yen per dollar.  The dollar has now appreciated 7.4% vs. the yen over the past two weeks, the largest jump over such a period since 1999.  A significant portion of the foreign currencies’ depreciation can be attributed to investors response to the near consensus (98% chance) expectation of a December Fed rate hike.  The Dollar Spot Index rose roughly 0.5% on the day, capping this week’s rally of 1.9%. 

  

Fed Official Echoes Yellen’s Rate Hike Commentary
Speaking at a press conference today, New York Fed President William Dudley echoed Janet Yellen’s recent comments with regard to the Fed’s rate hike expectations going forward.  After seeing global bond yields move up more in the last 2 weeks than any other 2 week period in more than 25 years, Dudley stated that “The movement in markets seems consistent with the change in expectations of how economic policy might evolve,” before confirming that he sees no concerns with the current monetary policy plan.  When asked if he thought that Trump’s target to boost economic growth to 4% was realistic, Dudley responded that it would be possible but not probable given the labor and productivity growth that would be required to generate such a change.  In a week where headlines surrounding President-elect Donald Trump’s policies provided the majority of market direction, Dudley offered, “It’s pretty important not to jump to a conclusion here before the policy actually gets set.”  Treasury yields have added another 1-6 bps on the day while all the major US stocks markets finished marginally down 0%-0.25%.      

Increased Optimism in OPEC Deal
Friday’s informal meeting in Doha among several OPEC representatives and Russia showed promise that a definitive deal could be reached come November 30th in Vienna, when OPEC ministers formally meet again.  At the conclusion of the gathering, energy ministers from both Algeria and Russia publicly confirmed that progress is being made towards agreement on a deal.  Despite not being a member of OPEC, Russia stated its intentions to join any cap in output for a minimum six months, while also encouraging other major non-OPEC oil producing nations to do the same.  However, there still remains a great deal of skepticism surrounding the situation, largely due to the lack of cooperation from Iran and Iraq.  Iran has consistently stated that the nation will continue to ramp up production as it operates in a sanction-free environment, while Iraq’s request for exemption highlights the country’s need for additional funds in their ongoing war with Islamic militants.  WTI crude gained 0.35% on the day to $45.60/barrel while Brent crude added 0.55% to $46.75/barrel.

Have a great weekend.