Weekly Market Update 30 Oct – US Dollar’s Rollercoaster Week: Ackman’s Reversal and Economic Resilience Closing Above 106.5
Weekly Market Update 30 Oct – US Dollar’s Rollercoaster Week: Ackman’s Reversal and Economic Resilience Closing Above 106.5
1. At the beginning of last week, the dollar got thrown off its upwards trajectory as Bill Ackman, an acclaimed hedge fund manager, reversed its bearish thesis on US 10-year treasury. Despite that, waves of positive US economic figures propelled the dollar, yet again, to close the week higher, above 106.5 as PMI, GDP, and PCE data reported resilience. On Tuesday, manufacturing and services PMI both reported expansionary, at 50 and 50.9 respectively, surpassing market expectations as providers cited improving activity levels and demand. Furthermore, advance GDP q/q surprised markets as it came in at 4.9% growth. Amidst the labour market, unemployment claims surged as there was an increase of 210K claims in the week ending October 21st. Core PCE price index m/m showed growth of 0.3%, in line with forecasts. Lastly, a consumer sentiment survey from the University of Michigan revealed lowered confidence as with the recent decline in equity markets, and expectation of worsening business and personal finances outlook. This week, markets await release of Federal Funds Rate (FFR), with consensus estimates that the FOMC will hold rates at 5.50%. Furthermore, labour-market news is expected this week, as ADP NFP, JOLTS, and NFP are all due.
2. The euro slid against the dollar, closing off at $1.05 as flash PMIs and ECB’s rate pause weakened demand for domestic currency. Eurozone flash PMI revealed contractionary conditions amidst manufacturing and service providers as new orders and demand fell at an accelerating rate. While the German ifo business climate index came in higher at 86.9, current manufacturing and services output levels remain underwhelming. Moreover, ECB’s rate pause decision on its refinancing rate at 4.50%, weighs further on the euro. Moving forward, markets await fresh CPI data for Germany and Eurozone next week, with estimates at 0.2% m/m and 3.1% y/y growth respectively.
3. Like its euro peer, the pound sterling fell against the dollar, closing near $1.21 as a surge in unemployment claims and worsening PMI sent the local currency lower. On Tuesday, claimant count change exceeded expectation of 2.3K claims and came in at 20.4K claims. Furthermore, manufacturing and services PMI remains bleak and contractionary. This week, investors anticipate release of BoE’s official bank rate, with expectation of a rate pause at 5.25%. Any deviance from the expectation could see volatility, which could potentially bring respite for the pound sterling.
4. Amidst fluctuations hovering around the 150 level, the yen has ultimately gained strength against the dollar, concluding the past week at 149.7. Tokyo’s y/y core CPI has surpassed expectations, registering a growth of 2.7%. This development is exerting pressure on the Bank of Japan’s (BOJ) monetary policy, as market sentiment increasingly factors in the likelihood of adjustments in the upcoming meeting scheduled for this week. Notably, ten-year overnight-indexed swaps have already exceeded the BOJ’s effective yield cap, indicating that traders are either betting on or hedging against a potential increase in bond yields. However, Ueda is cautious, and he seeks more concrete evidence of wage growth and a stable price trend before considering the abandonment of the BOJ’s negative interest rate policy next spring.
5. The loonie experienced a depreciation relative to the dollar, concluding the past week at 1.38, coinciding with the BoC’s decision to maintain its overnight interest rates at 5.0%. The central bank acknowledged that the uptick in inflation is of a widespread nature, primarily attributable to the surge in oil prices and the delayed consequences of monetary policy adjustments, which prompted a decision to maintain the current interest rates. This week, markets will look forward to GDP and labour market data to assess future rate decisions from BoC. The aussie disrupted the prevailing strength of the U.S. dollar and concluded the session with a higher close at $0.63, bolstered by a notable surge in inflation figures. Fueled primarily by increases in housing, transportation, and food prices, the y/y CPI recorded a robust 5.6% growth, surpassing the earlier consensus estimate of 5.3%. This robust inflation data has shaped the prevailing discourse surrounding a potential interest rate hike by the RBA, thereby contributing to the Australian dollar’s increased strength. This week, the financial markets will be anticipating retail sales data to assess the resilience of the economy and to determine whether a rate hike is warranted in order to mitigate the prevailing inflationary pressures. The kiwi had a lackluster week, closing near $0.58 against the dollar despite no major economic news. The focus now shifts to this week’s labor market data, with expectations of a rise in the unemployment rate from 3.6% to 3.9%.
6. Last week, gold exceeded $2,000 per ounce, driven by geopolitical tensions in the Middle East as Israeli forces launched a significant ground operation in Gaza amid ongoing diplomatic efforts to delay a full-scale invasion. Nevertheless, the metal’s advance was tempered by indications of the U.S. economy’s resilience, reinforcing the expectation of prolonged higher interest rates. The price of bullion may experience a pullback this week depending on the unfolding U.S. economic data.
