USD Up, Commodity Currencies Down as Jobless Claims Shake Market; nothing on the schedule

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Rates as of 0500 GMT

Market Recap

Such a big difference between the market in the beginning of the week and the market at the end! On Wednesday morning for example, just before the FOMC meeting, the difference in movement between the bestperforming currency and the worst the range on the graph above was 42 bps and I was moaning about how boring the market is. Today that spread is 243 bps and markets are wild.

The trigger for the huge move was a muchworsethanexpected initial jobless claims figure. Claims were expected to fall by 16k but instead rose by 36k to 412k. This was the first increase since Apil 24th.

The weak claims figure caused the Treasury market to reverse most of its losses from Wednesday following the FOMC meeting. Tenyear Treasury yields fell 7.1 bps to 1.504 1.470 at the lows, losing most of the 8.3 bps rise the previous day.

It was significant though that no matter whether Treasury yields moved up Wednesday or back down Thursday, breakeven inflation rates fell. Tenyear inflation breakevens fell a further 2.8 bps to a 3month low of 2.29. This is over 30 bps lower than its intraday high of 2.59 after the April CPI report in May shocked the markets.

The fall in breakevens may be a vote of confidence in the Feds ability to restrain inflation. Or perhaps it suggests that the markets dont have full confidence in the Feds new average inflation targeting AIT regime. It appears that investors doubt that the Fed will really be willing to let inflation run…

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