Key Movers

The US dollar was the standout performer through trade on Wednesday, recovering much of the week’s early losses following a stronger than anticipated ISM services print. The Bloomberg Dollar Spot Index (BBDXY) index jumped 0.7% as the euro fell short of breaking back above parity and slipped back below €0.99 while the GBP gave up ground falling near 1.5% to £1.1315. The robust services print alleviated fears the US economy may be on the brink of recession. Softer than anticipated, manufacturing data had sparked fears a broader slowdown was underway, elevating calls for the Fed to pivot away from its aggressive program of rate hikes. The uptick in services activity instead suggests consumers are simply transitioning back to the service economy and away from manufactured goods as we re-open after the pandemic. Strength across the service economy helped fuel a resurgence in US rates while Fed officials remain steadfastly committed to the current pace of rate adjustments. San Francisco Fed President Daly commented, “it would be really challenging to slow the pace of rate hikes when core inflation continues to rise”, suggesting another supersized 75-point hike will be delivered next month. As the dollar recoups the week’s early losses, our attentions turn to more Fed commentary and the European Central Bank (ECB) policy meeting minutes ahead of Friday’s all-important non-farm payroll print. With labour market performance critical in shaping Fed and USD direction, we expect markets will sideline major bets until after this data release.