Another week started with a barnstorming US data point, ISM services coming in strong, and the employment index, which was worryingly weak a month ago, bouncing right back. US exceptionalism is in fine fettle. Meanwhile, another Wednesday means another lousy German industrial production report. It was sunny in Munich and it’s raining in Frankfurt, but gloom about the economic outlook is the same in both cities. 

In the FX market, this all translates into a slightly stronger Dollar, but the correlation between FX and rate differentials remains strikingly strong, so if strong data don’t move Fed expectations much, they won’t have as big an FX impact as they might otherwise. 

US yields have risen slightly more in the last week than European ones, and EUR/USD is lower, but not that dramatically. If we are in thrall to rates, the medium-term question is still whether the Fed eases by more than the ECB, rather than how strong the US economy is.