marctomarket.com / by Marc Chandler / October 2, 2017
The US dollar is broadly higher as the quarter-end positioning losses seen at the end of last week area reversed. Developments in the US are seen as dollar positive, while the Catalonia-Madrid conflict, and slightly softer EMU manufacturing PMI weighs on the euro. The UK also reported a disappointing manufacturing PMI, and more differences with the Tory government are taking a toll on sterling. Japan’s Tankan Survey was stronger than expected, but the rise in US Treasury yields and the LDP’s slippage in the opinion polls has seen the greenback return to JPY113 from a JPY112.20 low before the weekend.
US 10-year yield reached nearly 2.37% earlier today, its highest level in 2.5 months. The focus on US tax cuts and the heightened speculation that Warsh could be the next Fed chair are factors thought to be lifting yields. We suspect the market may be jumping to a conclusion about Warsh, as he is just one of several candidates under consideration.
We had thought odds of Yellen;s reappointment was higher than the market had seemed to believe, but the betting markets have adjusted. We think that given the nearly complete turnover among the Board of Governors, there is pressure for some continuity and preservation of institutional memory. In this respect, perhaps Governor Powell, the remaining Republican-appointee on the Board, may be the compelling alternative to Yellen.