News & Analysis

After spending much of August and September tracking lower, this week saw the greenback’s fortunes turn. The DXY index rallied 1.5% between the start of the week and Friday’s payrolls report. Admittedly, geopolitical risk helped underpin some of the dollar’s move higher on a haven bid. But so did a hawkish readjustment of Fed easing expectations on better-than-expected data. This latter factor was thrown into sharp relief on Friday following a much stronger-than-anticipated jobs report. This not only killed off chances for a jumbo rate cut, but it was also a timely reminder for the Fed that inflation is not dead yet. While the broad dollar dictated price action across most currency pairs this week, cable stood out as an exception. Specifically, an interview with BoE Governor Bailey by the Guardian newspaper resulted in headlines hinting at ‘aggressive’ rate cuts, tanking the pound. What Bailey actually said, however, was that the Bank could be a “bit more aggressive” and “a bit more activist”, if the good news on inflation continued. In central bank speak, these things are radically different, leaving us to see the current sterling selloff as unwarranted.

Next week, we have the RBNZ, US CPI, and Canadian jobs at the top of the docket. The first of these looks more likely than not to deliver a 50bp rate cut, which should weigh on the kiwi. Similarly, we also think Canadian jobs data is set to pose downside risks for the loonie. While markets are looking for a relatively benign set of readings, we see odds skewed toward a weaker-than-expected set of prints. Even so, it is US CPI, accompanied by FOMC meeting minutes, that is likely to capture the market’s attention, next week. After this Friday’s payrolls report, markets will be looking for any sign of resurgent inflation pressures. We think it is likely too early for the strength in this week’s labour market data to be reflected in the CPI report, leaving us to anticipate a print that matches expectations. Even so, further confirmation that market projections for Fed easing remain too aggressive, could see further dollar upside next week.

You can read the Week Ahead in full here:

DOWNLOAD THE FULL REPORT

 

Authors: 
Nick Rees, Senior FX Market Analyst
María Marcos, FX Market Analyst

 

 

Disclaimer
This information has been prepared by Monex Europe Holdings Limited, part of Monex S.A.P.I. de C.V. (“Monex”). The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. All entities in the “Monex” group of companies are regulated for different products and services within the jurisdictions in which they operate. Details of the different entities can be found here. Details of the respective entities’ regulated status and available products and services can then be found on the relevant links to the individual jurisdictions’ website.