The U.S. dollar is up to start the week, building on its gains from the last two sessions.
Overview
U.S. equity futures are in the red this morning after U.S. stocks posted their best two-week rally since the Fall of 2020. While there is a fair share of risk events on this week’s docket, the Federal Reserve’s two-day meeting deserves top billing. The Fed is widely expected to raise interest rates by 75% on Wednesday afternoon. Fed Futures show the hike is fully priced in. The fireworks could start moments later when Fed Chairman Jerome Powell holds a press conference. Traders are unsure whether the Fed will hike an additional 75 basis points in December or go for a more modest 50 basis point hike. There is plenty of data due out between now and then, but the tone Powell takes on Wednesday afternoon will likely dictate the direction of the greenback for the first half of November. The second biggest risk event will come on Friday morning with the release of non-farm payrolls. Economists expect the U.S. economy added 190K jobs in the month of October, adding to an impressive 263K in the month prior. If the labor market remains resilient, policymakers will have more scope to fight inflation with higher interest rates. Today’s data includes the MNI Chicago Purchasing Managers’ Index at 9:45 a.m., followed by the Dallas Fed Manufacturing activity at 10:30 a.m. Both will likely be shrugged off as all eyes are on the Fed and Friday’s Non-farm payrolls.
What to Watch Today…
- No major economic events are scheduled for today
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JPY ⇓
The Japanese fell along with the rest of its G10 counterparts against the U.S. dollar. The yen is 0.80% weaker against the dollar since Friday’s close. A disclosure by the Japanese finance ministry this morning showed exactly how costly it was for the country to prop up the yen. Japan spent a record 6.3 trillion yen (about 42 billion USD) in October alone to fight the yen’s slide. Japan has over 1.2 trillion USD worth in reserves, so future intervention is possible. We expect the yen to remain under pressure as the two country’s central banks move in opposite directions. The policy divergence will be on full display this week when the US Fed hikes rates by 75 basis points.
GBP ⇓
The British pound slumped over half a percent against the U.S. dollar. It seems strange to say, but the drop came after a warning from the U.K. meteorological office that a colder-than-usual winter may hit the United Kingdom. The U.K. and much of Europe are bracing for a tough winter with energy shortages and skyrocketing prices. Despite the overnight drop, the sterling is still up nearly 6% from its lows of October 12th.
