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Euro and Pound Head for Biggest Weekly Gain in Four Months as Global Bond Rally Eases Dollar

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The euro and pound have experienced gains this week, putting them on track for their largest weekly increase in four months. This rise comes as global bond yields have fallen, resulting in a decline in the value of the dollar and even benefiting the weakened Japanese yen. However, the upcoming release of U.S. non-farm payrolls data, which is considered a critical data point, could potentially change this narrative entirely.

Currently, the euro is up 0.27 percent at $1.06515, and if it maintains its gains earlier in the week, it will achieve a weekly gain of 0.8 percent – the most significant increase since July. Similarly, sterling is also up 0.2 percent at $1.2228, and it is on track for a weekly gain of 0.86 percent – again, the largest since July.

The decline of the dollar can be attributed to its recent strong rally. The dollar index is expected to drop 0.6 percent for the week, marking only its third week of losses in the last 16. This decline parallels the decrease in U.S. yields. In particular, the benchmark U.S. 10-year treasury yield is set to experience a near 20 basis point weekly fall, the most significant drop in a week since July.

This decline has been influenced by the U.S. Treasury Department’s announcement of smaller-than-anticipated increases in longer-dated Treasury supply, as well as Federal Reserve Chair Jerome Powell’s optimistic remarks suggesting that the Fed has finished raising interest rates during his press conference following their Wednesday meeting. The markets have now priced in less than a 20 percent chance of a rate increase in December, compared to the 39 percent predicted earlier in the week, according to the CME FedWatch tool. It should be noted, however, that the Fed has not completely ruled out the possibility of further increases in borrowing costs, acknowledging the resilience of the economy.

Despite these events, the focus of the week remains on the U.S. payrolls data, which is yet to be released. Yusuke Miyairi, an FX strategist at Nomura, emphasized the significance of this data, stating, “We’ve had plenty of events this week, the BOJ, the Fed, the Treasury refunding, the BOE, but what’s most important is payrolls.” Miyairi suggested that if there is a significant deviation from the consensus estimate, such as a 100,000 difference, it could trigger a sell-off of the dollar. However, it is yet to be determined whether the market sentiment will reach that point, as the outcome of the payrolls data is awaited.

Analysts predict that U.S. non-farm payrolls likely increased by 180,000 jobs in October, a decrease from the 336,000 jobs added in September. This decline is partially attributed to strikes by the United Auto Workers (UAW) union against Detroit’s “Big Three” car makers, which negatively impacted manufacturing payrolls.

On Thursday, the Bank of England announced its decision to maintain interest rates at their current level, aligning with other major central banks. While the Bank of England emphasized that it does not anticipate cutting rates in the near future, this further contributed to the rally in bonds.

Meanwhile, the Japanese yen experienced a strengthening against the dollar on Friday, with a 0.2 percent decrease, bringing the exchange rate to 150.19 yen. This follows a volatile week where the Japanese currency reached a one-year low against the dollar and a 15-year low against the euro. The Bank of Japan made slight adjustments to its yield curve control policy on Tuesday, but not to the extent expected by the markets.

The Australian dollar saw a slight increase at $0.6444, just shy of the one-month high it reached on Thursday at $0.6456. Both the Australian and New Zealand dollars have had a strong week, with a 1.7 percent increase – their best weekly performance since mid-July.

In contrast, the Swiss franc, which benefited from a flight-to-safety bid in October, experienced a weakening this week. The dollar is expected to have a weekly gain of 0.25 percent against the franc, with the current exchange rate at 0.9041 francs.

Overall, the euro and pound have demonstrated significant gains this week as the dollar weakened, thanks to falling global bond yields. However, the upcoming release of U.S. non-farm payrolls data holds potential to alter this trend. The Bank of England’s decision to keep interest rates steady and the strengthening of the yen also contribute to the current market dynamics. As investors await the payrolls data, the market sentiment remains uncertain, and the outcome of the data will likely determine the future direction of the currencies involved.

More detail via www.theepochtimes.com here… ( Image via www.theepochtimes.com )

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