No change in monetary policy is expected at the conclusion of today’s FOMC meeting. The vote is expected to be uneventful, lacking the drama of past meetings. The markets are suggesting the next interest rate reduction may be in June, followed by another at the end of the year. This outlook is in direct contrast with many other central banks where forecasts are for no change or even chances of a rate hike.
Will the FOMC address the decline in the dollar as it slid to the lowest level in almost four years? The world’s primary reserve currency fell for a fourth straight day and is coming off its worst week since May.
Some have argued the Bessent Treasury is advocating for a weaker currency to spur American trade and growth. Bessent talked about currency/tariff relationships during his Congressional hearing and the trajectory of the dollar is closely following what he had discussed during this testimony.
Bessent was a former FOREX (currency) trader and worked closely with Geoge Soros making billions when the British pound imploded several decades ago.
A major question at hand is when will this weakness begin to impact on Treasury yields? Traditionally a weaker currency suggests higher yields to attract buyers for the debt.
Generally speaking, most are concluding that the dollar weakness reflects caution following a bout of unpredictable Washington policy making, risks around Federal Reserve independence, a growing budget deficit, worries about fiscal profligacy and widening political polarization.
Speaking of weakness, consumer confidence declined in January to the lowest level since 2014 on a more pessimistic view of the economy and labor market. The reading fell short of all estimates in a Bloomberg survey.
Confidence surveys have limited predictive qualities as they are perceived as the ultimate feedback monitor as they indicate where we have been and not to where we are going. However, the magnitude of the miss is disconcerting.
Commenting on yesterday’s activity, the yield curve steepened as longer dated Treasuries sold off. The Dow and the NASDAQ were bifurcated as health insurance companies fell and mega tech rallied. The Dow posted a 1% decline and the NASDAQ a 1% gain.
After the close today, TSLA, MSFT and META post results.
Last night the foreign markets were mixed. London was down 0.53%, Paris down 1.34% and Frankfurt down 0.51%. China was up 0.27%, Japan up 0.05% and Hang Seng up 2.58%.
Dow and NASDAQ futures are flat and up 0.75%, respectively as ASML posted “blockbuster earnings.” The President’s “relaxed” stance on the decline of the dollar is adding to speculation that the dollar may be entering a prolonged period of weakness. The 10-year is up 1/32 to yield 4.23%.
