Summers Sinks Dollar
The dollar came under broad-based selling pressure overnight after Larry Summers pulled out of the race to succeed Fed Chair Bernanke. Over the past two months the market consensus had shifted very much in favour of a Summers succession. Over that time UST 2y yields rose sharply, due to perceptions that Summers’ instincts were more hawkish than other contenders.
This process is now likely to go into reverse to the detriment of the US dollar.It’s already happening − the US Treasury market was closed for a Japanese holiday overnight, but Eurodollar futures indicate that 18 bp of tightening by Dec 2015 has already fallen out. The dollar selloff could extend further today if equities rally and risk appetite improves more generally.
Read the full report: UBS