CAPITALDIGEST, MARKET REVIEW, 11/10/2022

DOLLAR GAINS AS INVESTORS SEE FED STANCE LIKELY UNCHANGED; EURO, STERLING FALL The dollar rebounded across the board on Wednesday as recent risk-on sentiment reversed and U.S. stocks dropped, with the euro and sterling down more than 1% each. The euro was down 1.4% at $0.9852 after rising 1.7% on Tuesday. Sterling was down 1.8% to $1.1268, after rising for six straight sessions. Its fall extended slightly as UK Prime Minister Liz Truss pledged to bring down debt as a share of national income, just over a week after the government’s plans to slash taxes and ramp up borrowing spooked markets. Adding to the pressure on the pound, data showed Britain’s private-sector economy last month suffered the sharpest contraction in activity since a COVID-19 lockdown early last year. Recent gains for most major currencies against the dollar have been underpinned by hope among investors and traders that the U.S. Federal Reserve will raise interest rates by less than previously expected. “You had a general risk-on where the euro, sterling really traded well and the stock market gained. I kind of think this is just (investors) exploring a trading range,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. DOLLAR GAINS AS INVESTORS SEE FED STANCE LIKELY UNCHANGED; EURO, STERLING FALL The dollar rebounded from recent weakness on Wednesday as investors viewed the U.S. Federal Reserve’s aggressive stance on interest rates as likely unchanged, with the euro and sterling down at least 1% each. The euro EUR=EBS was down 1% at $0.9892, and was set for its biggest daily percentage slide since Sept. 23, after rising 1.7% on Tuesday. Sterling GBP=D3 was down 1.1% at $1.1344 after rising for six straight sessions. Its fall extended slightly as UK Prime Minister Liz Truss pledged to bring down debt as a share of national income, just over a week after the government’s plans to slash taxes and ramp up borrowing spooked markets. Adding to the pressure on the pound, data showed Britain’s private-sector economy last month suffered the sharpest contraction in activity since a COVID-19 lockdown early last year. A dollar index .DXY measuring the greenback against a basket of currencies was last up about 1%. On Tuesday, it had its biggest daily percentage decline since March 2020. Recent gains for most major currencies against the dollar have been underpinned by hope among investors and traders that the Fed will raise interest rates by less than previously expected. DOLLAR CLIMBS AS U.S. JOBS REPORT IS STRONGER THAN EXPECTED The U.S. dollar strengthened against major currencies on Friday after U.S. data showing employers hired more workers than expected in September, suggesting the Federal Reserve will likely stick to its aggressive tightening policy for now. The dollar reversed early losses against the Japanese yen and was last up 0.2% at 145.42 yen. The dollar hit a 24-year peak of 145.90 yen last month, which had prompted an intervention by Japanese authorities to shore up the fragile yen. The euro fell against the dollar, extending losses after the U.S. jobs report, and was last down 0.6% at $0.9735. “Any sign of U.S. economic weakness will weigh heavily on the dollar, but it certainly didn’t come with nonfarm payrolls,” said Adam Button, chief currency analyst at ForexLive in Toronto. Nonfarm payrolls increased by 263,000 jobs last month, the Labor Department said in its closely watched employment report. Data for August was unrevised to show 315,000 jobs added as previously reported. STERLING FALLS AGAIN AS INVESTORS AWAIT FRIDAY’S U.S. JOBS DATA Sterling GBP=D3 slipped on Thursday after a sharp drop the previous day, as investors waited for Friday’s highly significant U.S. jobs data. The pound was 0.66% lower against the dollar at $1.1244, after dropping 1.4% on Wednesday. The euro EURGBP=D3 was last up 0.38% against sterling at 87.67 pence. Gyrations in the dollar have caused choppy waters in global currency markets this week. Traders are grappling with whether the U.S. Federal Reserve will maintain its aggressive pace of interest rate hikes as it tries to curb inflation – which has sent the dollar surging this year – or whether concerns about slowing economic growth mean it will “pivot” and raise borrowing costs more slowly. The greenback suffered its biggest one-day drop in more than two years on Tuesday after some weak economic data raised hopes that the Fed might slow down on rate hikes. Yet it rebounded a day after, with the bounce continuing on Thursday. The dollar index =USD was last up 0.52% to 111.52, not too far from its 20-year high of 114.78 touched last week. U.S. non-farm payrolls employment data, due out Friday, will give traders a clearer sense of the state of the country’s economy. FOREX-DOLLAR DIPS IN CAUTIOUS TRADE AHEAD OF U.S. JOBS DATA The dollar eased on Friday, ahead of a key employment report later that could offer a litmus test of the strength of the U.S. economic recovery, but with the Federal Reserve’s commitment to fighting inflation, losses could be short-lived. The euro and the pound pared overnight losses and rose for the first time in three trading sessions, while the Japanese yen clawed back from another break through the key 145 level against the dollar. Overnight, a slew of Fed officials reinforced the view that the central bank is nowhere near finished with its hiking cycle as it seeks to bring down inflation, and that rates are expected to go up further. The September non-farm payrolls report comes hot on the heels of a measure of private-sector hiring that beat expectations and an indicator of vacancies that showed an unexpected decline, offering a mixed picture of the jobs market. Consumer inflation data is due next week and could prove equally influential in setting investors’ expectations for the Fed, according to CIBC head of G10 currency strategy Jeremy Stretch.