CAPITALDIGEST MARKET REVIEW 11 OCTOBER 2021

MONDAY 4/10/2021 – DOLLAR EDGES DOWN AS TRADERS AWAIT U.S. JOBS DATA The dollar slipped against a basket of currencies on Monday, pulling back from the 1-year high hit last week, as traders looked to U.S. jobs data at the end of the week for clues to the Federal Reserve’s next move The U.S. Dollar Currency Index, which measures the greenback against a basket of six currencies, was 0.2% lower at 93.802. The index rose 0.8% last week to its highest since late September 2020. With Chinese mainland markets closed until Thursday for the National Day holiday and South Korean markets also shut on Monday, investor attention was firmly on the upcoming U.S. data. “Nonfarm payrolls will be the big focus for markets this week,” Brad Bechtel, global head of FX at Jefferies (NYSE:JEF) in New York. Friday’s data is expected to show continued improvement in the job market, with a forecast for 488,000 jobs to have been added in September, according to a Reuters poll — enough to keep the Federal Reserve on course to begin tapering before year’s end. The Fed has signalled it will likely begin reducing its monthly bond purchases as soon as November but a big stumble in labor data could delay its plans, traders worry. “Will the Fed react negatively to a 300k print? Likely not. With the momentum on taper already really high, the Fed will have a hard time making an about face after a small miss on what has been a very volatile series,” Bechtel said. “If we were to see something more extreme like a negative NFP print for example, then we could have a different story and the Fed may be forced to at least pause,” he said.   TUESDAY 5/10/2021 – DOLLAR EDGES HIGHER WITH FRIDAY’S PAYROLLS DATA IN FOCUS The U.S. dollar edged higher on Tuesday, lingering close to the one-year high hit last week, as traders remained circumspect ahead of key payrolls report at the end of the week that could provide clues to the U.S. Federal Reserve’s next move. Moves in the FX market were likely to remain largely muted for the rest of the week as investors await the update on the U.S. labor market that could help provide clues to whether the Fed will begin tapering its asset purchases before year’s end, analysts said. “Nonfarm payrolls is always a market mover,” said John Doyle, vice president of dealing and trading at FX payments firm Tempus Inc. “An underwhelming print will give the Fed dovish cover, but a blowout reading, paired with rising inflation made worse by the energy crisis will put more pressure on the Fed to begin tapering and help the greenback,” said Doyle. Friday’s non-farm payrolls data is expected to show continued improvement in the labor market, with a forecast for 488,000 jobs to have been added in September, a Reuters poll showed. The U.S. dollar index =USD , which measures the currency against six rivals, was 0.2% higher at 93.981, moving back towards Thursday’s peak of 94.504, its highest since late September 2020. “Generally, the U.S. dollar is trying to find new ranges after a strong rally at the end of September. In my opinion, the greenback’s rally was overdone and we have seen that unwind over the past three to four days,” Doyle said. Others, however, expected the greenback to resume its upward move. With the Fed likely to soon begin scaling back asset purchases, “conditions are ripe for continued USD strength once the current, likely consolidative, correction in the dollar passes,” Shaun Osborne, chief currency strategist at Scotiabank, said in a note.   WEDNESDAY 6/10/2021 – STERLING KNOCKED LOWER AS SOARING ENERGY PRICES BOOST DOLLAR The British pound dropped half a percent against the dollar on Wednesday as a further surge in energy prices and government bond yields sent investors into safer currencies. Sterling hit as low as $1.3559 and was 0.1% weaker versus the euro at 85.18 pence. The U.S. dollar, measured against a basket of currencies, is close to its strongest level in more than a year. The jump in oil and gas prices has heightened fears of a spike in inflation, pushing government bond yields higher as investors bet central banks will be forced to raise interest rates to curb prices rises. Gilt yields have surged, with the 2-year yield rising to as high as 0.518%, its highest since February 2020. British wholesale gas prices soared to record highs in several contracts on Tuesday amid wider energy market price hikes, ongoing supply concerns, colder weather forecasts and a cut in French nuclear generation due to a strike. Analysts, however, said the pound was holding up relatively well in the recent global sell-off in riskier assets, as rising expectations for Bank of England (BoE) rate rises offset the nervousness about the energy price jump. “Higher energy prices are directly feeding into BoE tightening expectations and supporting the pound. Even though that tightening may ultimately be a policy mistake it looks far too early for that to hit GBP,” said ING analysts in a research note.   THURSDAY 7/10/2021 – STERLING STEADIES AS INTEREST HIKE EXPECTATIONS LEND SUPPORT Sterling steadied versus the dollar and euro on Thursday with the prospects of a Bank of England rate hike reduced downside potential for the currency, analysts said. Sterling has erased all of its strong 2021 gains as concerns weighed about British economic growth and rising inflation, as the country grapples with a fuel crisis. The British currency was flat versus the dollar at $1.3584 at 0838 GMT., after marching on Wednesday towards a December 2020 low touched last week amid a sharp rise in energy prices. Improved global risk sentiment on Thursday with oil prices bouncing back from multi-year lows and European stocks in positive territory, lent some support to the pound. But analysts said in separate notes to clients that the prospect of interest rate hike in Britain was what was preventing the pound from sliding further. “Prospects of higher rates in the UK are probably reducing the downside potential for GBP-USD,” UniCredit Research analysts said. “Although EUR-GBP attempts to slip below 0.85 are quite episodic”.   FRIDAY 8/10/2021 – DOLLAR EDGES HIGHER AS JOBS DATA EYED FOR FED POLICY CLUES The dollar edged higher versus major peers on Friday but within a narrow range as traders awaited clues on the pace of Federal Reserve policy normalization from a monthly payrolls report. The U.S. Dollar Currency Index, which measures the greenback against a basket of six peers, rose 0.1% to 94.278, keeping within sight of last week’s one-year peak of 94.504. The dollar gained 0.26% to 111.91 yen, and touched 111.93, the highest level this month, helped by higher Treasury yields, with the benchmark 10-year note hitting 1.6010% for the first time since June 4. The euro consolidated around $1.1550, after dipping on Wednesday to a 14-month low of $1.1529. The Federal Reserve has said it is likely to begin reducing its monthly bond purchases as soon as November and follow up with interest rate increases potentially next year, as the U.S. central bank’s turn from pandemic crisis policies gains momentum. Friday’s non-farm payrolls data is expected to show continued improvement in the labour market, with a consensus forecast for 500,000 jobs added in September, although estimates ranged from 250,000 to 700,000, a Reuters poll showed. Following the September Federal Open Market Committee meeting, Chair Jerome Powell said the upcoming payrolls report need not be “a knock-out, great, super-strong” report to keep policy makers on track toward tapering, but it would need to be “reasonably good”.