Muted Movement in EUR/USD and USD/JPY Pairs During New York Trading Hours

May 30, 2018

For decades, I’ve been recording at least two quotes a day in major dollar relationships. Sometimes, I take down more than two quotes, but I always get a quote shortly after 4 PM and an earlier record around 7:30 in the morning. The latter quotes are the ones I use for my daily rate series because global trading volume is heavier then than late in New York’s afternoon.

This past month I’ve noticed that on numerous days, there has been comparative little change in the dollar between the opening and closing quotes. Like most months since Donald Trump became president, the news volume has not been turned down low. Keeping up with directional reversals on a slew of issues has been difficult and intuitively would seem an ideal back-drop for a very volatile dollar.

Other U.S. financial instruments have swung widely. For example, the 10-year treasury yield fluctuated between 2.77% and 3.11%, and the Dow Jones Industrial Average posted changes of plus-or-minus 0.7% or greater on nine of the 21 business days thus far, including a rebound today of 1.3% after Tuesday’s plunge of 1.6%. And in fact, the high-low corridors of the dollar have been decently large — 4.9% in the case of the euro and 3.4% relative to the yen.

Examined day by day, however, and measuring movement only between U.S. openings and closing quotes, not 24-hour changes as one normally might view in a study of daily movement, I did in fact discover rather muted net dollar responses. Against the euro, the dollar changed 0.1% or less on 11 of 22 days, that is between a dip of 0.1% and an uptick of that amount when rounded to the nearest tenth of one percent. Only twice was there a net change in the New York hours of more than 0.3%, and those did not exceed 0.4%.

Regarding the yen, the dollar was even more stable, changing 0.1% or less on 13 days and also exceeding a net same-day change of more than 0.3% just twice.

The past two days really highlight this comparative inertia of the EUR/USD and USD/JPY relationships during New York’s business day. Yesterday saw the DOW dive 1.6% and, more dramatically still, the 10-year Treasury yield plunge 14 basis points. But the dollar fell merely 0.1% against the euro and 0.2% versus the yen. Today, the 10-year yield rose 0.5% and was accompanied by a 1.3% recovery of the DOW. The dollar slid 0.3% against the euro but merely 0.1% versus the yen.

One possible inference to draw is that at least lately, most of the movement in the dollar against the euro and yen is occurring outside of the U.S. trading period. Since the yen lately has been perceived as a hedge against regional existential risks to the EU and European Monetary Union, the euro and yen have been pulling at cross purposes, preventing big dally changes in the dollar against either, and this can be considered another explanation for dampened daily changes.

There is tendency to attach causation to changes in the dollar, washing back from either shifts in share prices or, more often, changes in U.S. interest rates especially if such rate changes are not matched abroad. A more compelling conception of the relationship between foreign exchange rates, interest rates, and capital flows, however, is that all three are determined simultaneously in the marketplace and no one of these variables dominates the behavior of the others. Viewed from this lens, there is nothing truly unusual about having big swings in the Treasury market and U.S. share prices these last couple of days without commensurate net movements in the dollar.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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