The US Dollar rose for the fifth consecutive day, buoyed by the pound’s decline as Americans trade after a long Thanksgiving weekend. This upward movement in the greenback is being observed as the week’s calendar has a lot of economic indicator releases, which in turn may affect the monetary policies of the Fed.
On Tuesday, the dollar was stronger than all its counterparts in the Group of 10 except the Japanese yen. The Bloomberg Dollar Spot Index also rose slightly by 0.2%. At the same time, the US Treasury market came back to work after the Labor Day holiday, the yield on the two-year note, which reflects expectations of interest rate changes, rose by one basis point reaching 3.93%.
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Some figures that will be important to monitor are received this week
Manufacturing on Tuesday, services on Thursday, and the most important non-farm payrolls on Friday are important reports for investors to focus on from the US economy. Such outlook reports will enable users to know whether the Federal Reserve will continue with the existing measures or change its course. Today’s swaps market is expecting a 25% probability that the Fed could or might cut its benchmark rate by more than 25 bp this month.
This is Frances Cheung who serves as Oversea-Chinese Banking Corp.’s head of foreign exchange and rates strategy. In Singapore, dealers pointed out that, “We expected a short-term climb in US yields and dollar based on anticipation of the labor market data A consistent payroll may lead the market to review imminent Fed rate cut expectations. ”
Key Facts on Dollar in the Recent Past and the Projections on Its Further Movement
This was the first sequential drop for Bloomberg’s dollar index in August after the speech by Fed Chairman Jerome Powell which raised some expectations for a change of the monetary policy. Still, there are doubts about the possibility of a further deceleration of the growth rates and inflation in the United States and the possibility of a 50-point cut in interest rates by the Fed at its meeting on September 17-18.
The August ISM manufacturing numbers due out later in the day will be the first major indicator of the market. Analysts expect the reading for the first time to rise since March, which in turn may affect the greenback’s direction.
Market Sentiment: Other external factors that affect global markets include;
As Malayan Banking Bhd strategists including Saktiandi Supaat pointed out the dollar may intensify its rally if the actual figure of August ISM manufacturing disappoints and brings about a larger scale of adjustment to rate-cut expectations.
However, political instability in Europe and the upcoming presidential election in the USA were provided by Morgan Stanley as the factors that can keep the dollar afloat, while expressing skepticism about the value of the US Dollar Index sinking under the critical 100 mark.
On Tuesday most currencies of the Group of 10 declined against the dollar, with the Australian dollar which was most affected by declining iron-ore futures and underwhelming GDP input statistics. The yen was not too bad, especially after the Bank of Japan’s Governor Kazuo Ueda re-asserted his intentions to proceed with further policy tightening.
Karl Steiner, head of analysis at Skandinaviska Enskilda Banken AB said, The issuance of monetary data by the Fed has created a data-driven market thus it is important to focus on where the market seems stretched, competitively more balanced than in early August on the yen.
In the week ahead, all the focus will remain on the upcoming economic data points to decide whether the dollar’s strengthening will persist or end due to changed expectations.
