The USD gave back some of its gains during the London session on Monday, largely because a 30 pip rise in the EUR/USD exchange rate outweighed a 30 pip fall in GBP/USD. As we explained in yesterday morning’s commentary, because of the index weightings, GBP/USD has to fall almost 5 times as much as the EUR/USD rises in order to keep the US Dollar index unchanged. By the New York close, as equity markets rallied once again, the Dollar had regained its earlier losses and closed at 95.60
The S&P 500 Index ended the day up 0.32% at 2,659, a new record close, led by the telecoms, technology and energy sectors. In particular, a 2% gain for Brent crude, the global oil benchmark, helped to lift energy stocks on optimism about higher oil prices after a shutdown of a major pipeline which brings the UK’s North Sea oil onshore. The Dow Jones Industrial Average added 0.23 per cent to 24,386; another all-time closing high. Futures markets are again indicating a very modest increase at the open and we might well see more headlines later about fresh intra-day stock market records being set; yesterday’s records came using daily closing levels.
The Fed begins its two-day FOMC meeting today and it is a near-certainty that rates will be raised 25bp. The only reason that some of the online calculators show an 88% probability of a 25bp hike is that the residual 12% reflects a 1-in-8 chance of a 50bp move. Now that would be a shock!
On the US economic calendar this week, the NFIB Survey of small business optimism is out today, CPI is released Wednesday, Thursday brings retail sales and Friday is industrial production. If the stock market can withstand higher rates and a new set of interest rate projections for 2018, the US Dollar ought to continue to find some support, especially given the generally constructive price action seen on Monday.