US dollar makes some headway against the euro and yen

Dollar Index rises above 92

Dollar Index rises above 92
The Dollar Index flirted with 92 a few times last week but was consistently rejected. It’s now made its way above it as the euro and yen come under pressure.
I’m hesitant to take any signals ahead of the FOMC but the tone of the commentary around the FOMC has shifted dramatically in just two weeks. Back then, there was non-stop talk about rising bond yields and now commentators and economists don’t seem to be worried at all, and are talking about the Fed being more upbeat.
I’m not sure that’s going to be the case. Powell and other Fed members have consistently highlighted high unemployment and remaining patient through the reopening. It’s way to soon to be declaring victory and any kind of hint at tapering would undermine the Fed’s credibility.
At the same time, you can’t ignore the inflation picture. US 10-year breakevens are at 2.30% today, the highest since 2014.
That leaves the Fed in a tough spot, they could declare victory but if you send a tightening impulse as soon as the market sees above 2% inflation, then you only hammer home that 2% is a ceiling and that all the talk of an overshoot was hollow.
So I think they stay dovish and that risks to the dollar are on the downside. But of course Powell can’t control all the dots so that might undermine the message and keep the dollar bid.

European medical agency pushes AstraZeneca vaccine decision to Thursday

Decision was supposed to be today

The European Medicines Association says it’s continuing its investigation of the AstraZeneca vaccine and evaluating all blood clots on a case-by-case basis.
On the surface, that sounds worrisome but their comments are largely positive. They say they remained convinced of the benefits of the vaccine and that the benefits outweigh the risks. They say blood clot events are ‘very rare’.
The euro is back near the lows of the day, down 13 pips to 1.1917 even with the US dollar broadly weaker.
Decision was supposed to be today

COVID-19 no longer top market risk for the first time since February 2020 – BofA fund manager survey

Inflation and taper tantrum take over as top risks for the market

  • ‘Long tech’ still the most crowded trade, followed by Bitcoin
  • 15% of investors think US equities are in a bubble
  • 25% say it is an early-stage bull market, 55% say late-stage bull market
  • ~43% of investors think 2% 10-year US yields could cause equities correction
  • Cash levels up to 4.0% (still low) from 3.8% before
  • Allocation to commodities at all-time high
Some interesting insights as to how market sentiment is developing. The low cash levels continue to highlight that investors are still preferring to find places to put their money where possible, with some potentially positioning for a ‘commodities supercycle’.
Other than that, the shift in the top market risk also reaffirms how little emphasis is put on the virus impact and how market participants are now focusing more towards the outlook and economic reopenings more than anything else.
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