Does USD steamroll higher?
December 23, 2024
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–Back in September, the difference between the lowest contract on the SOFR strip (SFRU4 at 9505) and the peak (SFRM6 at 9721) was -216. Currently, the lowest contract is SFRH5 at 9581 and the peak is SFRU6 at 9603. (I use old euro$ convention and consider H5 as front contract). That spread is -22. Obviously a LOT of easing expectation has been squeezed out of forwards as 100 bps have been cut from Fed Funds. Torsten Slok of Apollo said post-FOMC that he believes there’s a 40% chance of a hike this upcoming year.
–Attached is a chart of India Rupee (new low today vs USD at 85.11), Turkey Lira and Brazil Real. Back in 1997/98 there was the Asian currency crisis. DXY hit its highest level of the year last week, printing just above 108.50. China Renminbi is also at a new low for 2024 at 7.299.
–Today’s news includes Chgo Fed National Activity, expected -0.15 from -0.40, Durables, New Home Sales, Consumer Confidence. 2y auction. Current wi is 4.32%, exactly in line with Fed Effective at 4.33% and SOFRRATE at 4.30.
–Friday featured lower than expected PCE prices, with yoy 2.4% vs 2.5 exp and Core 2.8 vs 2.9. Yields ended lower with tens down 4 bps to 4.526% and back month sofr contracts (greens and blues) +5.0 to +6.5.
