US: High rates continue to support the dollar - BBH

Analysts at BBH note that the higher US rates continue to support the dollar.  

Key Quotes

“The 10-year yield is up 3 bp to 2.33%, while the 2-year yield is up 2 bp to 1.56%.  The 2-year premium over Germany is at 228 bp, a new cycle high.   Bloomberg’s WIRP page has the odds of a Fed hike on December 13 at 84%.  Break of the 1.1750 area for the euro sets up a test of the October low near 1.1670.”  

“During the North American session, the US will report September housing starts and building permits.  Weekly jobless claims will also be reported for the BLS survey week.  However, disruptions from the storms are likely to impact the data.  The Fed’s Dudley and Kaplan speak during the morning, while the Fed’s Beige Book will be released in the afternoon.”

“The Fed guessing game continues.  President Trump said he will likely choose the next Fed chair from the five “finalists”:  Yellen, Warsh, Taylor, Powell, and Cohn.  Betting site PredictIt has Powell at 38 cents, Warsh at 26 cents, Taylor at 21 cents, Yellen at 19 cents, and Cohn at 7 cents.  Those are the payouts for a dollar bet.”  

“Both CAD and MXN trading yesterday was choppy on NAFTA concerns.  Initial selling on news that Mexico and Canada rejected US demands was then countered by news that NAFTA talks will be extended past the end-2017 deadline and into Q1 2018.  Pessimism regarding NAFTA had been weighing on these currencies, and so the news caught the market wrong-footed.  These two are the best performing currencies today as the US dollar continues to gain against most others.”