After running up the score on Friday following a blowout non-farm payroll release, the United States Dollar is for the most part holding those gains this morning and is trading in mixed territory against its G10 peers
Overview
Bond yields extended their rise from Friday and US equity futures slipped before the open this morning after the Dollar notched its best week in two years wrapping last Friday. The fallout from Friday’s report is most readily seen in overnight Fed interest rate swaps, which are no longer even pricing 100% odds of any cut at all at the Federal Reserve’s meeting next month. As recently as the beginning of last week, those swaps placed the Fed’s path forward at an even odds of 25 or 50 basis points of easing, making such repricing during Friday’s session a rather large move.
The data calendar is fairly light for the US this week but the vibes remain the same, as geopolitical risk along with US outperformance continues to dominate the global conversation on the anniversary of Hamas’ attack on Israel. This risk-off sentiment is keeping global stocks depressed, while elevating gold and oil prices as tensions continue to ratchet higher in the Middle East. President Joe Biden reportedly has been discouraging Israel from retaliating against Iran for last week’s missile attack, but Israel does remain enmeshed in what is now a multi-front war as regional sentiment continues to crater.
There are a couple releases of note for the US this week – even a quiet week is not silent. Fed policymakers Bowman and Kashkari are scheduled to speak today, and the minutes from last month’s Fed meeting are due out Wednesday afternoon. Markets are bracing for a rather hawkish bias from these minutes given the tone of Powell’s press conference following their supersize 50 basis point cut. US CPI figures for September are also due out Thursday morning.
What to Watch This Week…
- US FOMC Minutes, Wednesday 2PM
- US CPI, Thursday 8:30AM
- UK GDP, Friday
- US PPI, Friday 8:30AM
GBP ⇓
Pound Sterling is the biggest loser against USD in the G10 this morning, compounding last week’s losses and slipping a further third of a percent. Traders are beginning to price in a faster pace of policy easing from the Bank of England, following lackluster economic figures over the last month or so. When coupled with US swaps moving the opposite direction, this has given GBP decent ground to lose some of its unprecedented strength it held through September and bring it much closer to our forecasted level. The GBPUSD pair will likely be at the mercy of Dollar movement rather than concrete news from the UK this week as the data calendar is rather bare.
JPY ⇓
Japanese Yen this morning is clawing back some of last week’s historic losses against USD, after in the last 5 sessions JPY lost nearly 5% of ground and notched its worst week against the Buck since 2009. Japan’s newly-appointed finance minister Katsunobu Kato in an interview this morning highlighted once again the administration’s concern with ‘sharp currency fluctuations,’ and in keeping with the language of his predecessor said the administration “will carefully watch the impact of forex moves on the Japanese economy and people’s lives.” Nonetheless, JPY’s slide last week was quite remarkable and it will take a shock release from either the US or Japan to take the pair back to trading levels from just 10 days ago.
