The published earnings continue to come at higher-than-expected figures in general terms, and consequently the Dow Jones index has reached the maximum levels.
Despite fears of inflation and supply chain shortages, American companies appear to have achieved their profit targets. More than 85% of S&P 500 companies reporting through Tuesday beat expectations in the third quarter.
Results like these and ultimately a more robust stock market can favor the beginning of the tapering process, as early as the first week of November, a scenario that is increasingly being taken for granted in the market.
The markets are debating the gradual tapering process and the interest rate hike that comes with it and expecting the implementations to take place as early as the second half of next year.
The increases in yields are taking place gradually, returning the 10-year bond steadily to levels above 1.60%. This should be a positive sentiment for the USD, as it has been for the USD/JPY, which rose to its highest level since November 2017.
However, the dollar is not performing in the same way against all currencies. The US dollar has weakened against commodity currencies such as the Australian, New Zealand, and Canadian.
Since late September, the increase in raw materials has led to this type of behavior, where currencies are, are directly correlated, as is the case of USD/CAD with the price of crude oil.
But the Federal Reserve's communication policy has also had a significant influence on this dollar performance. Before the FOMC meeting and the expected tapering process by the Fed, the fact that the dollar price remains at the same levels seen in the last two weeks, is a sign of very good communication to the market by the Federal Reserve, as it has managed to convey a change in monetary policy without causing abrupt movements.
The pace in which the dollar will continue to strengthen will depend on the intensity with which the reduction of bond purchases is carried out, something that will be communicated by the Fed soon. The markets are now expecting rate hikes because of the soon to be published employment and inflation data.
The Beige Book report published yesterday was a bit more pessimistic with slower growth data. More specifically, it says “the outlook for short-term economic activity remained positive overall, but some districts noted greater uncertainty and more cautious optimism than in previous months."
Sources: Bloomberg, Reuters
