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MONDAY 25/10/2021 – DOLLAR STEADIES AS TRADERS LOOK TO CENBANKS FOR GUIDANCE The dollar has bounced off recent lows and was firm in choppy trade on Tuesday ahead of a handful of data releases and central bank meetings which investors expect to guide the rates outlook. The euro fell 0.3% overnight on softer-than-forecast German business morale and expectations that the European Central Bank (ECB) will stay dovish when it meets on Thursday. The euro last bought $1.1598, near a one-week low. Other overnight moves were modest, with the dollar easing a tad on the Aussie, kiwi and sterling. It was steady on Tuesday save for a small rise on Japan’s yen to 113.83 yen, and a slight dip on the Aussie. The U.S. dollar index rose held at 93.856. “The dollar looks to be finding its feet in the mid-93s,” analysts at Westpac said in a note, as focus turns to the ECB’s meeting as well as U.S. growth data due on Wednesday. “The focus will turn to the ECB and U.S. Q3 GDP this week. The ECB likely underscores dovish guidance, while US GDP will show the rebound stalling, but price pressures continuing to build,” they said, setting the scene for the Federal Reserve to announce a reduction in bond purchases as soon as next week.   TUESDAY 26/10/2021 – POUND AT 20-MONTH HIGH VS EURO ON DIVERGING CENTRAL BANK BETS Sterling rose to 20-month highs against the euro on Tuesday, driven by diverging interest rate expectations for Britain and the euro zone, especially after data showed UK full-time earnings rising by the most since 2008. Money markets are pricing in a rate hike by the Bank of England before the end of the year and expectations of further tightening grew as labour market data showed median full-time weekly pay in April was 4.3% above year-ago levels. The pound has rallied around 2% versus the euro and the dollar so far this month , with the single currency also dogged by signs the European Central Bank (ECB) will be among the last to raise rates in the developed world. Monday data showing German business morale deteriorating for the fourth month running in October cemented expectations of a dovish message from Thursday’s ECB meeting. By 1500 GMT, sterling traded at 84.075 pence to the euro, 0.3% firmer on the day, just off the 84.03 level that was the highest since February 2020.Against the dollar, it strengthened as far as $1.38290 before ceding some of those gains to trade at $1.379, or 0.2% higher. “Yields have moved sharply in favour of the pound of late though the rally has been mostly against lower-yield currencies like the euro and yen,” Lee Hardman, FX strategist at MUFG Securities, said.   WEDNESDAY 27/10/2021 – U.S. DOLLAR INDEX FALLS AS CURRENCY VOLATILITY PICKS UP The U.S. dollar lost value against major currencies on Wednesday as the Bank of Canada started off a series of awaited central bank policy comments that could bring more volatility to what had been a relatively steady market. The moves took the U.S. dollar index down 0.2% to 93.73 and as the dollar weakened against the Canadian dollar, euro and Japanese yen. The greenback lost 0.6% to the Canadian dollar after the Bank of Canada signaled that it could hike interest rates sooner than it had thought. The loonie traded at $1.2320 in early afternoon in New York. read more Before the announcement, which was viewed by some as surprisingly hawkish, the Canadian dollar had weakened to its lowest level in nearly two weeks against its U.S. counterpart. “You’re going to see more FX volatility and swings here,” said Ed Moya, senior market analyst at broker OANDA. Traders will have different expectations for inflation in each region, Moya said, adding: “Interest rate differentials are going to be really hard to calculate for some currencies.”   THURSDAY 28/10/2021 – POUND FIRMS VS DOLLAR, SLIPS AGAINST EURO AS RATE HIKE BETS RE-ASSESSED Sterling firmed on Thursday against the dollar, which lost ground after data showed weak economic expansion in the third quarter, though it slipped versus the euro following an ECB meeting which failed to dissipate bets on a 2022 rate hike. The pound has been buffeted of late by speculation over whether the Bank of England would proceed with an interest rate hike at its Nov. 4 meeting, or hold fire, given concerns around economic growth. Finance minister Rishi Sunak on Wednesday promised higher public spending, but his budget, while projecting robust 6.5% growth in 2021, also flagged inflation of almost 5% next year. While that appears to make a rate hike more feasible, the pound displayed little reaction, with focus staying on the possible longer-term economic growth hit stemming from supply chain disruptions, Brexit and potential monetary tightening. It raced higher on Thursday to the dollar, however, after U.S. data emerged showing the economy expanded at 2%, its weakest rate in a year. The dollar index fell 0.6% to the lowest in a month. By 1600 GMT, sterling was up 0.5% to $1.3779, having earlier traded as high as $1.38150. Against the euro, the pound slipped 0.3% at 84.65 pence, but held off 20-month highs hit earlier this week on bets around diverging central bank interest rate expectations. Markets are pricing in a cumulative 34 bps in rate hikes from the BoE by year-end, while the European Central Bank is expected by economists to stay on hold for some years despite markets pricing two rate hikes by end-2022. At the ECB meeting, its chief Christine Lagarde pushed back against rate hike bets but admitted inflation would be high for longer. Some saw her statement as too timid.   FRIDAY 29/10/2021 – DOLLAR REBOUND CONTINUES AS EURO PLUNGES The dollar continued to rebound from prior-day losses on Friday as the euro plunged and currency and bond markets tried to sort through inflation reports and central bank comments amid end-of-month position adjustments. The dollar index was up 1% around noon (1600 GMT) in New York, more than reversing Thursday’s loss of nearly 0.6%. The move put the dollar on track for its biggest one-day gain since at least June and near a one-year high reached 17 days ago. The euro fell more than 1% in its biggest daily percentage loss since March 2020. On Thursday the euro booked its biggest daily gain in five months. The British pound fell 0.8% to $1.3680 . Volatility in the foreign exchange and the interest rate markets has increased during the week as they tried to digest central bank actions and economic reports. Next week could bring more of the same around policy meetings of the U.S. Federal Reserve, the Bank of England and the Reserve Bank of Australia. “A source of volatility could be this discrepancy between what the markets are saying and what the central banks are saying,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. Month-end adjustments of positions are another factor, Chandler said.