The U.S. Dollar remained relatively stable today, with the Bloomberg Dollar Spot Index showing little change while seeing some significant moves against the Japanese Yen as well as Mexican Peso
Overview
This stability comes amid heightened geopolitical tensions in the Middle East, particularly following Iran’s missile attack on Israel. The uncertainty surrounding Israel’s potential response has led to a cautious market sentiment, with traders seeking safe-haven assets such as U.S. Treasuries. As a result, yields on 10-year Treasuries rose by five basis points to 3.78%, reversing the previous day’s gains. The geopolitical fears have overshadowed the optimism around central bank easing, causing a shift in market drivers.
Traders and investors are closely monitoring several key events this week that could influence the Buck’s trajectory. These include the release of U.S. Non-Farm payrolls data on Friday, which will provide insights into the health of the domestic labor market. ADP Employment Change this morning showed better figures than expected, but correlation between that and the official gauge has not been present in recent times. Additionally, speeches by Federal Reserve officials, such as Richmond’s Thomas Barkin and Cleveland’s Beth Hammack, will be closely watched for any hints on future monetary policy. Tomorrow, we will get a glimpse of September Purchasing Managers Index as well as August Durable Goods Orders and Factory Orders.
What to Watch This Week…
- PMIs, Factory Orders on Thursday
- US Nonfarm Payrolls, Friday 8:30AM
- Monex USA Online is always open.
JPY ⇓
The Japanese Yen weakened against the Buck, falling following comments from Japan’s Prime Minister Shigeru Ishiba. The brand new head of state ruled out further interest rate hikes by the Bank of Japan, citing that the economy is not quite ready for additional tightening measures. This stance has led to increased market speculation that the BOJ will face political pressure to slow down the pace of rate hikes, encouraging traders to rebuild Yen shorts. Down the line, the market will closely monitor the BOJ’s policy meeting at the end of October, with expectations that the central bank will maintain its current stance until at least December or January. As the nation rebuilds confidence, perhaps the sentiment can change, but it is clear this is a major step-back from promises of more “hawkish” policy to come.
MXN ⇑
The Mexican Peso strengthened against the Dollar, appreciating by close to 1.0% following President Claudia Sheinbaum’s historic inauguration as the first female president and talks of fomenting the energy industry. Sheinbaum pledged to boost renewable energy production to 45.0% of Mexico’s power generation by 2030, which has been positively received by investors. This commitment to renewable energy is expected to attract foreign investment and support the Peso in the near term. This is also a break from the Peso’s guidance being mostly tied to political anxieties.
