Flight to Safety Supports the Dollar
The U.S. dollar index is higher. Some of the strength is due to flight to quality buying in light of developments in the Middle East, and some of the support is because of ongoing favorable interest rate differentials.
The greenback remains in a 10-day congestion pattern.
The fundamentals and technicals remain supportive to the U.S dollar.
There is growing speculation that the European Central Bank will lower interest rates sooner rather than later. Over the weekend ECB official Francois Villeroy de Galhau signaled that policy makers could lower borrowing costs at any time this year and all options are open at upcoming policy meetings. Analysts are now predicting the ECB could reduce its key interest rate by 25 basis points as early as April.
The Bank of England is expected to leave interest rates unchanged at 5.25% at its policy meeting on Thursday.
STOCK INDEX FUTURES
Stock index futures are mixed.
The January Dallas Federal Reserve manufacturing survey will be released at 9:30 central time. The survey last month was -9.3.
The fundamentals and technicals remain supportive to stock index futures.
INTEREST RATE MARKET FUTURES
Futures are mostly higher, especially at the long end of the curve, as flight to safety is supporting futures.
There are no Federal Reserve speakers today, which is in keeping with the Federal Reserve’s “blackout period” in advance of a Federal Open Market Committee meeting.
Financial futures markets are predicting there is a 2.0% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at the January 31 policy meeting, and there is a 98% probability that the Fed will keep rates unchanged.
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