USD gains due to market uncertainty
Monday 10 October, 2022
Daily Currency UpdateThe macroeconomic headlines came from the US on Friday. Non-farm payrolls beat expectation. After February’s reading of 678K every reading has been lower and below expectations, with the exception of July.
US unemployment also beat forecast coming in at 3.5%. It was expected to see no change at 3.7%. The news has done little to sway expectations that the US Federal Reserve will raise interest rates by 75 basis points (bps) on November 2nd with the US economy seemingly holding up better than the UK and Europe.
Comments from Bank of England’s Dave Ramsden hurt the pound on Friday. He stated that Chancellor of the Exchequer, Kwasi Kwarteng’s mini budget had a ‘material’ impact on the economy and that policy makers must stay the course to bring inflation under control.
The phrase material normally gets used by policy makers when signalling something to be very good or bad. The latter in this case. This has seen market expectations increase on interest rates being hiked by the Bank of England at its next meeting on November 3rd, by potentially anything from 50 bps, up to 100 bps. GBP/USD is back down closer to 1.1000 this morning after trying to break 1.1500 last week. The currency pair opened at 1.1060. GBP/EUR also sits lower and opened the day above 1.1400.
This week starts with both Japan and US bank holidays. The US celebrates Columbus Day, which will only see a number of states close for the holiday, not all. This week’s headline release is on Thursday with US CPI y/y expected to drop from 8.3% to 8.1%. On Wednesday we will see the FOMC meeting minutes also, meaning we could be in for another volatile week for the US dollar.
Key MoversRisk-off seems to be the theme today with many market events dampening the demand for riskier assets. New US trade curbs have knocked Chinese chipmakers, threatening to worsen trade ties between the two largest economies. Chinese data over the weekend showed that the country’s services sector unexpectedly shrank in September, amid continued COVID-related disruptions.
News of a bridge being bombed, linking the Crimean Peninsula to mainly Russia has escalated tensions between Ukraine and Russia. This has seen the US dollar gain across the board as market participants tend to buy USD at times of market uncertainty. EUR/USD has dropped as low as 0.9688 this morning and GBP/USD has touched 1.1050.
- GBP/USD: 1.0990 - 1.1130 ▼
- GBP/EUR: 1.1340 - 1.1460 ▼
- GBP/AUD: 1.7380 - 1.7710 ▲
- EUR/USD: 0.9660 - 0.9750 ▼