The euro and pound are on track for weekly gains against the dollar as global bond yields decrease, resulting in a weaker dollar. This decline in the dollar has also benefited the Japanese yen. However, the upcoming release of the crucial U.S. nonfarm payrolls data could potentially change the situation.
Currently, the euro is up 0.1% at $1.0632, and the pound remains flat at $1.2193. Both currencies are heading for weekly gains of 0.63% and 0.61%, respectively. This rise in the euro and pound is a reflection of the decrease in U.S. yields. The U.S. 10-year treasury yield is set for a weekly fall of 17 basis points, marking its most significant decline in a week since July. This decline was triggered by the U.S. Treasury Department’s announcement of smaller-than-expected increases in longer-dated Treasury supply, as well as the Federal Reserve Chair Jerome Powell’s suggestion that the Fed is finished raising interest rates.
Despite leaving the door open for a potential increase in borrowing costs, the Fed has signaled a more cautious approach. This has led to a decrease in market expectations for a rate hike in December. The CME FedWatch tool indicates that the chance of a rate increase in December is now less than 20%, down from 39% earlier in the week.
While various events, such as the Bank of Japan, the Federal Reserve, the Treasury refunding, and the Bank of England, have occurred throughout the week, market participants are eagerly awaiting the U.S. nonfarm payrolls data. Yusuke Miyairi, an FX strategist at Nomura, states that the payrolls data is the most crucial event of the week. If there is a significant miss, such as 100,000 fewer jobs compared to consensus, it may lead to a sell-off of the dollar. However, if the data is strong, the dollar could rebound.
Analysts predict that U.S. nonfarm payrolls likely increased by 180,000 jobs in October, slower than the 336,000 in September. This decrease is partially due to strikes by the United Auto Workers union against Detroit’s “Big Three” carmakers, which have impacted manufacturing payrolls.
Additionally, the Bank of England has decided to keep interest rates steady, aligning with other major central banks. Although it 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 whirlwind week, touching a one-year low against the dollar and a 15-year low against the euro on Tuesday. This was a result of the Bank of Japan’s alterations to its yield curve control policy. According to Reuters, sources familiar with the central bank’s thinking report that Kazuo Ueda, the central bank’s governor, aims to dismantle the ultra-loose monetary policy and exit the accommodative regime next year.
The Australian dollar remains relatively unchanged at $0.6435, just below the one-month high of $0.6456 it reached on Thursday. Both the Australian and New Zealand dollars have seen a 1.6% increase this week, 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 heading for a 0.5% weekly gain against the franc, currently standing at 0.9068 francs.
In summary, the euro and pound are set for weekly gains against the dollar due to the decline in U.S. yields. However, the highly anticipated U.S. nonfarm payrolls data could potentially shift the narrative. The Bank of England’s decision to keep rates steady and the Bank of Japan’s plan to exit its accommodative regime next year also contribute to the current market conditions.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )