Inflation fears drive stocks lower, bond yields & dollar higher
Soaring prices of natural gas in Europe and the UK this morning stirred up inflation fears worldwide, even after prices subsequently fell and currently trade below yesterday’s close. A gauge of UK inflation expectations rose to a 13-year high, increasing bets on a speedier tightening of monetary policy by the Bank of England. The US dollar is broadly stronger in its role as a safe-haven currency in these volatile, uncertain times, and from increasingly attractive US Treasury yields – the UST 10Yr edged up to 1.53%. Gold and oil prices are little changed overnight at $1,758 per oz. and $78.25 per barrel, respectively. Traders remain focused on US jobs data tomorrow and Friday.
October 6, 2021
EUR/USD 1.1544 GBP/USD 1.3574 USD/CAD 1.2629 AUD/USD 0.7254 USD/JPY 111.34 USD/CNH 6.4448 USD/ILS 3.2399 USD/MXN 20.7469 USD/CHF 0.9283 USD/INR 74.9837 USD/BRL 5.5169 USD/SGD 1.3610 USD/DKK 6.4465 USD/SEK 8.8096 USD/NOK 8.6038
The dollar is broadly stronger on the back of high uncertainty related to spiking energy prices. Only the other key safe-haven currencies, the Japanese yen and Swiss franc, managed gains versus the dollar overnight. September’s ADP Employment Report, which shows changes in US non-farm private sector employment, surprised on the upside this morning, and helped raise expectations for better jobs data on Friday.GBP
The UK pound turned lower today, reversing a 4-day uptrend against the dollar. CFTC data shows that FX traders as a group are increasing net ‘short’ positions. A combination of rising energy prices, labor shortages and supply chain disruptions has pushed inflationary expectations past 4% this year, twice the Bank of England’s target rate. Public pressure is building on PM Boris Johnson’s administration in the handling of the escalating economic chaos. Today’s release of UK Construction PMI came in at 52.6, lower than expected, but still expanding above 50.EUR
Having pushed the EUR/USD convincingly below previous key support at $1.16, traders are now eyeing $1.15. The euro is down nearly 0.5% overnight, in line with most currency declines against the dollar. Recent eurozone economic data has been weak, and today’s release of Retail Sales for August at 0.3% MoM and 0.0% YoY was significantly below expectations of 0.8% and 0.4%, respectively.CAD
The Canadian dollar is slightly lower against the dollar, despite the rise in energy prices overnight. PM Justin Trudeau is scheduled to announce details of Canada’s vaccination mandates in his first press conference since winning the election last week.ASIA/PACIFIC
The Japanese yen was one of the only currencies to gain against the dollar overnight, as its role as a safe-haven dominates FX trading activity.
China is still celebrating Golden Week, which ends tomorrow.
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