USD Down on Fed Insouciance, CAD Up on oil

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Rates as of 0500 GMT

Market Recap

Its always surprised me that the market keeps reacting to the same news over and over again, as if its stuck in a Groundhog Day  type loop. Yet it seems that whenever officials say the same thing that they said last week, the market reacts all over again. In this case it was Fed Vice Chair Clarida saying that the Fed isnt ready to start normalizing policy yet. Through that April employment report, we have not made substantial further progress, Clarida said Monday. Remember that substantial further progress is what theyve said they need to see before they can start adjusting policy. As we go through the year, policymakers will weigh the data and we will certainly give advance warning before we anticipate scaling back the pace of those purchases.

Nothing new here from my point of view, but perhaps just the fact that he didnt say anything different or maybe that he emphasized the lack of progress in employment instead of the morethanexpected progress on inflation reassured the market. On the contrary, he seemed to accept that higher inflation was likely in the near term. The way in which we bring supply and demand into balance in the labor market, especially in the service sector, may take some time and may produce some upward pressure on prices as workers return to employment, Clarida said. We have to be attuned and attentive to that data flow.

Yet US bond yields rose on the news probably because it signals the Fed is willing to…

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