USD gains due to market uncertainty

Daily Currency Update

The macroeconomic headlines came from the US on Friday. Non-farm payrolls beat expectation. After February’s reading of 678K every reading has been lower and below expectations, with the exception of July.

US unemployment also beat forecast coming in at 3.5%. It was expected to see no change at 3.7%. The news has done little to sway expectations that the US Federal Reserve will raise interest rates by 75 basis points (bps) on November 2^nd with the US economy seemingly holding up better than the UK and Europe.

Comments from Bank of England’s Dave Ramsden hurt the pound on Friday. He stated that Chancellor of the Exchequer, Kwasi Kwarteng’s mini budget had a ‘material’ impact on the economy and that policy makers must stay the course to bring inflation under control.

The phrase material normally gets used by policy makers when signalling something to be very good or bad. The latter in this case. This has seen market expectations increase on interest rates being hiked by the Bank of England at its next meeting on November 3^rd, by potentially anything from 50 bps, up to 100 bps. GBP/USD is back down closer to 1.1000 this morning after trying to break 1.1500 last week. The currency pair opened at 1.1060. GBP/EUR also sits lower and opened the day above 1.1400.

This week starts with both Japan and US bank holidays. The US celebrates Columbus Day, which will only see a number of states close for the holiday, not all. This week’s headline release is on Thursday with US CPI y/y expected to drop from 8.3% to 8.1%. On Wednesday we will see the FOMC meeting minutes also, meaning we could be in for another volatile week for the US dollar.