USD: Divergence trade continues to lose appeal – TDS

By FXStreet FXStreet (Delhi) – Ned Rumpeltin, European Head of FX Strategy at TDS, notes that the USD has turned in an uneven performance in the run up to the December FOMC policy meeting.

Key Quotes

“On the face of it, the dollar should be enjoying smooth sailing in the final days before the Fed is expected to raise interest rates for the first time in nearly a decade. Instead, the DXY is down by nearly 3% from its early-December peaks. For those who have banked on the ever-growing pull of the ‘divergence trade’, this has probably come as a real surprise.”

“The ECB threw cold water on expectations for an aggressive monetary easing this month. This dealt the divergence theme a major— and early—blow. Similarly, the RBNZ also underwhelmed at its December policy meeting. In both cases, these institutions delivered the bare minimum expected by the market. While both kept their doors open to future action, underlying hawkish tones suggested any additional easing was a long way off. It is clear in our minds that these institutions have taken an important step toward neutrality. That one of the smallest and one of the largest G10 central banks have both taken this step within …read more

Source:: FX Street