Lockhart further signals towards September rates rise

Wednesday, August 05, 2015

Atlanta Fed President Dennis Lockhart gave investors their clearest sign yet that the central bank is gearing up to increase interest rates. In an interview with the Wall Street Journal the FOMC member commented that a significant deterioration in US economic data would need to present itself in order to convince him that a rates rise next month was not yet warranted. Citing robust data over the past few months while playing down the weak spots which have in recent sessions knocked sentiment he expressed his confidence in a resilient US economy. Markets reacted quickly to the news with yields on ten year US treasuries rallying off their 200 day moving average and back above 2.2% with activity early this morning seeing further increases as ten year yields hit 2.2447% early on.

The USD bolstered its strength against a basket of major currency pairs yesterday as the dollar index rallied 0.47% yesterday, pushing briefly above 98.00 before ending the session at 97.931. Activity this morning has seen an extension of gains with the dollar index trading towards 98.218 early on and we expect near term support levels to hold firm while short term targets on the upside may be limited as significant resistance around this level is tested. Gold prices remained under pressure owing to the stronger dollar as they settled almost a dollar higher yesterday after trading within a wide range either side throughout the day. Investors will be paying close attention to this week’s non-farm payrolls data which could strengthen the case for an incoming rates rise and put further pressure on spot gold prices.

The Thai baht held near a six year low towards 35.085 against the dollar as investors braced themselves ahead of the Bank of Thailand meeting. The baht has retreated 3.8% against the dollar since the start of July with year-to-date losses reaching 6.8% as the expectation of a US rates rise in the coming months has prompted overseas investors to pull funds out Thailand. Market participants expect the Bank of Thailand to keep rates unchanged at 1.5% today with the currency trading either side of 35.000 over the past few sessions. Fears of slowing growth, which could potentially hit sugar production, could exert additional pressure on the baht as the diverging outlooks for the US and Thai economy see investors favour the greenback on an expected US rates rise this year.

Dollar index resumes march higher

DXY Curncy DOLLAR INDEX SPOT 2015 08 05 07 50 57

Thai baht under pressure from a strong USD

THB Curncy Thai Baht Spot 2015 08 05 07 31 41

Events for today

0230

JP

Jul

Composite PMI

0855

DE

Jul

Markit Services PMI

0900

EZ

Jul

Markit Services PMI

0930

UK

Jul

Markit/CIPS Services PMI

1000

EZ

Jun

Retail Sales

1315

US

Jul

ADP Employment Change

1330

US

Jun

Trade Balance

1445

US

Jul

Markit Services PMI

1500

US

Jul

ISM Non-Manufacturing

1530

US

w/e

EIA Energy Stocks

Topics: US Fed, USD, THB
More from: Kash Kamal