Published October 8, 2024
The US Dollar trades dispersed in the G10 space with no real outliers to report.
China markets are back online after the Golden Week closure, sparking a surge in volatility.
The US Dollar Index trades above 102.00, though sees selling pressure overshadow for a second day in a row this week.
The US Dollar (USD) is seeing a fade in last week’s rally for a second day in a row with investors welcoming China back to the markets. It is not a warm welcome, with the Chinese Hang Seng 300 Index down over 9% at its closing bell. A surge in risk-off is taking place, with European stocks on the backfoot as well.
The economic calendar is light and should not create big waves on Tuesday, with the Goods Trade Balance and the Economic Optimism Index not expected to be market movers. Comments from Federal Reserve Bank of Atlanta President Raphael Bostic and Federal Reserve Vice Chair Phillip Jefferson, however, could be.
Daily digest market movers: China sees concerns emerging again.
China has reopened again after a week of festivities for the Golden Week. The festive mode has rather quickly dampened, with the Hang Seng Index correcting near 10% at its closing bell. The negative reaction spilled over into European markets and some risk-off across the board.
At 10:00 GMT, the National Federation of Independent Business (NFIB) released its Business Optimism Index for September, which raised to 91.5 from 91.2 in August, falling short of economist expectations of 91.7.
The Goods and Services Trade Balance data from August is expected to be released at 12:30 GMT. The Goods and Services Trade Balance should see a smaller deficit of $-70.4 billion compared to the wider $-78.8 billion in July. The Trade Balance excluding Services showed previously a deficit of $-94.3 billion, with no forecast available.
The TechnoMetrica Institute of Policy and Politics will release at 14:00 GMT the Economic Optimism Index for October. A small uptick to 47.2 is expected, coming from 46.1, though indicating ongoing consumer pessimism.
At 16:45 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic (2024 FOMC voting member) speaks about the US economic outlook at the Atlanta Consular Corps luncheon. At 22:30 GMT, Federal Reserve Vice Chair Phillip Jefferson (2024 FOMC voting member) delivers a speech at an event organized by the Davidson College in Davidson, North Carolina.
As mentioned above, European equities are being infected with a negative tone coming from China. All European indices are down by 1%. US Futures are still looking for direction ahead of the US opening bell.
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SOURCE: www.fxstreet.com
RELATED: Is the dollar’s decline already over?
Strong US jobs data is likely to add to other forces to keep the currency strong
For the dollar to weaken, net capital inflows to the US (that is, dollar demand) need to be smaller than trade-related net dollar selling © Reuters
Published October 8, 2024
After months of steady ascent, the dollar has been giving back gains in recent months. In the year to the end of July, the US currency climbed 5 per cent against a broad basket of peers tracked by the Federal Reserve. It then softened, largely thanks to increased expectations for lower interest rates that were confirmed with a half percentage point cut by the Fed in September. That made the dollar’s prospects relatively less attractive.
Today, though, such expectations are not likely to prove sufficient to keep the dollar on a downward trend, particularly after further evidence of strong job creation in the US last week.
After all, markets are supposed to price in publicly known information. That means the dollar’s current valuation already reflects expectations of another 1.5 percentage cut in the benchmark Fed fund interest rate between November and the end of 2025. Further rate cuts would require additional economic softening that while certainly possible, feels a bit further away after the latest, robust US jobs data. Ten-year Treasury bond yields have already been boosted by this, crossing the key 4 per cent mark.
And there are further broader forces that are likely to support the dollar. It is important to remember that exchange-rate trends are largely a function of cross-border trade and capital flows, as well as the factors that influence those flows, such as fiscal and monetary policy. Simply put, for the dollar to weaken, net capital inflows to the US (that is, dollar demand) need to be smaller than trade-related net dollar selling.
For most of the past decade, the dollar has benefited from a steady inflow of capital into US public and private equities and bonds, in addition to foreign funds coming to the US for direct investment. The attractiveness of dollar-denominated assets has been bolstered by strong growth, relatively attractive bond yields, and expectations that an innovative technology sector could help propel further stock market outperformance.
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SOURCE: www.ft.com
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