The euro and pound have seen a boost this week, with both currencies on track for their biggest weekly gain in four months. The rally in global bonds has caused yields to drop, leading to a decline in the dollar and even bringing relief to the embattled Japanese yen.
The euro has risen 0.27% to $1.06515, and if the gains from earlier in the week hold, it will see a weekly gain of 0.8%, the largest since July. Similarly, sterling has increased by 0.2% to $1.2228, and is also set for a weekly gain of 0.86%, the most since July.
The decline in the dollar follows a strong recent rally, with the dollar index on track to drop 0.6% for the week, marking its third week of losses in the last 16. This decline corresponds with a drop in US yields, with the benchmark 10-year treasury yield heading for a near 20 basis point weekly fall, the most in a week since July.
The fall in yields was triggered by the US Treasury Department announcing smaller-than-expected increases in longer-dated Treasury supply, and Federal Reserve Chair Jerome Powell expressing confidence that the Fed is done hiking interest rates at a press conference after their Wednesday meeting.
Despite leaving the door open to a further increase in borrowing costs as a nod to the economy’s resilience, the Fed’s stance has caused markets to price in less than a 20% chance of a rate increase in December, compared to 39% earlier in the week, according to the CME FedWatch tool.
However, the focus of the week remains the US non-farm payrolls data, which is due later today. This data is considered the most important point in a week packed with significant events. If the data significantly deviates from expectations, it could change the narrative entirely.
Yusuke Miyairi, an FX strategist at Nomura, emphasized the importance of the payrolls data, stating, “If there’s a big miss, say 100,000 compared to consensus, I think that’s the time that people could really start selling dollars, I don’t think we’re at that inflection point yet, but people’s sentiment is starting to go in that direction.” On the other hand, if the data is strong, Miyairi expects people to return to buying dollars.
Analysts predict that US non-farm payrolls likely increased by 180,000 jobs in October, lower than the 336,000 jobs added in September. This slowdown is partly attributed to strikes by the United Auto Workers (UAW) union against Detroit’s “Big Three” car makers, which depressed manufacturing payrolls.
In other news, the Bank of England has joined other major central banks in keeping interest rates unchanged. While they made it clear that they do not expect to cut rates anytime soon, this has further fueled the rally in bonds.
The Japanese yen strengthened on Friday, with the dollar down 0.2% to 150.19 yen. This follows a whirlwind week for the Japanese currency, which saw it reach a one-year low against the dollar and a 15-year low against the euro after the Bank of Japan made adjustments to its yield curve control policy.
According to six sources familiar with the central bank’s thinking, the Bank of Japan’s governor, Kazuo Ueda, plans to continue dismantling its ultra-loose monetary policy and aims to exit the accommodative regime next year, as reported by Reuters on Thursday.
The Australian dollar has also seen a slight increase, reaching $0.6444, just shy of the over one-month high of $0.6456 it reached on Thursday. Both the Australian dollar and the New Zealand dollar have had a strong week, with both currencies up 1.7%, marking their best weekly performance since mid-July.
On the other hand, the Swiss franc, which benefited from a flight-to-safety bid in October, has weakened this week. The dollar is on track for a weekly gain of 0.25% against the franc, currently standing at 0.9041 francs.
Overall, the global bond rally and the decline in the dollar have had a positive impact on the euro and pound this week. However, today’s release of the US non-farm payrolls data could have a significant impact on the market and potentially change the current narrative.
More detail via Yahoo Sports here… ( Image via Yahoo Sports )
