The United States Dollar managed to hold steady during yesterday’s trading session and this morning is moving into positive territory for the 8th straight day against all its G10 peers
Overview
Risk aversion writ large continues to dominate market sentiment, as Middle East tensions and China’s economic woes remain at the forefront of the minds of investors. The Bloomberg Dollar Spot index is up roughly a quarter of a percent, and over the last 8 sessions has notched a gain of roughly two percent from just off its annual lows in its longest winning streak since April of 2022.
Ahead of the release of the Federal Reserve’s meeting minutes later today, traders have through the last few days been reassessing the Fed’s path forward for the remainder of this year in a big way. As recently as last Monday, overnight swaps were split on whether we would see a 25 or a 50 basis point cut at November’s meeting. As it stands now, markets only see 22 basis points, which means that even a 25 point move is no longer baked in the cake. Based on the tone of Jerome Powell’s press conference following the central bank’s supersize move in September, we expect the minutes released today to lean slightly on the hawkish side, especially with the notable dissenting vote of Michelle Bowman. Following the release of Friday’s non-farm payrolls, the Fed’s Jefferson stated that their employment and inflation goals are now roughly in balance, suggesting that the central bank is now just attempting to keep that balance. From recessionary fears, to a soft landing, market players are now seeing that the ‘no landing’ scenario may be back in play.
Still to come this week we’ll see US CPI for September, due out tomorrow morning. Market expectations see a monthly price rise of just 0.1%, slightly down from August’s reading, and annualized price growth of 2.3%, also a decline. The core reading excluding food and energy is expected to hold steady.
What to Watch This Week…
- US CPI, Thursday 8:30AM
- UK GDP, Friday
NZD ⇓
The New Zealand Dollar is the worst performer in the G10 this morning, down nearly a percent against USD. The Reserve Bank of New Zealand cut interest rates by 50 basis points overnight, which was widely expected by markets and followed the same move from the Federal Reserve. The following statement, however, leaned quite dovish as policymakers highlighted a higher level of concern over the nation’s continuing economic slowdown and left the door open for more easing to come. Traders now fully expect a further 50 basis points of easing from the RBNZ in late November.
GBP ⇓
Pound Sterling is currently trading at its weakest point against USD since September 12, just under a month. While Dollar positivity and poor risk sentiment is a large driver of the pair right now, traders are also quite jittery about the release of the UK’s quarterly GDP Friday morning especially in conjunction with Bank of England Governor Andrew Bailey’s markedly dovish comments last week. Still to come this month, too, is the new Labour government’s inaugural budged from Chancellor Rachel Reeves on October 30. Though Keir Starmer’s government does appear to be on the moderate side, markets do remember the disastrous budget proposed by then-PM Liz Truss that caused the Pound to crash to nearly parity with the Dollar.
