USD: Shutdown Averted for Now, Focus Shifts to Jobs Data
As large parts of Asia celebrate the Golden Week holiday, FX markets have had a quiet start to the week. However, there are several upcoming events that could impact the market, including central bank speakers, rate meetings in Australia, New Zealand, Poland, and Romania, and the release of US jobs data on Friday. Despite these events, it is unlikely that the strong dollar will be knocked off its pedestal.
While Asian markets are subdued, the release of China’s latest PMI numbers over the weekend had little impact on FX market activity. Instead, the focus is on the US Congress, which has agreed on a stopgap spending bill to fund the government until November 17th, thus avoiding a shutdown. This news has averted immediate concerns and provides some stability in the market.
The week ahead will see the release of manufacturing PMIs from around the world, including the US ISM. The highlight for US data will be the September jobs report on Friday, which is expected to show a steady increase in jobs and a slight drop in unemployment. Despite these positive numbers, it is unlikely that they will change the Federal Reserve’s hawkish stance or weaken the strong dollar.
In fact, recent data on US consumption and spending reveal that the US consumer is in better shape than previously believed. This suggests that strong US consumption could continue into the fourth quarter. While this supports the case against further interest rate hikes, it also pushes back the possibility of rate cuts. These factors, combined with long-dated US yields, which have been driving the dollar in recent weeks, may contribute to the dollar consolidating at its current highs.
Looking ahead, next week will see US Treasury auctions for three, ten, and thirty-year bonds, and these could have a significant impact on yields. However, this assumes that there are no major surprises in Friday’s US jobs report.
In the eurozone, last week’s bounce in EUR/USD above 1.06 appears to have faded, signaling that the euro may stay lower for a little longer. Soft PMI numbers for Europe in September are expected, and focus will shift to whether the European Central Bank (ECB) will deliver a final rate hike. ECB speakers will provide more insight into this issue, with President Christine Lagarde speaking at a monetary policy conference on Wednesday. While money markets have priced out any further tightening by the ECB, Italian fiscal concerns could continue to have an impact on the euro.
In the UK, EUR/GBP is settling into a range, and this may continue throughout October. The Bank of England (BoE) meeting on November 2nd is the next important event, and it is expected that rates will remain unchanged. However, the release of the BoE Decision Maker Panel survey on Thursday could show a further easing in price pressures, which could negatively impact the pound.
In Central and Eastern Europe (CEE), rates are again the main driver for FX markets in the region. The release of manufacturing PMIs in the CEE countries will provide insights into the mixed and complicated industry picture. The National Bank of Poland’s meeting will be the main event, and another rate cut is expected, although a smaller one this time. The National Bank of Romania will follow with its meeting, but a rate cut is not expected until early next year. The FX market in the region continues to be affected by the strong US dollar, and higher interest rates could bring more pain to emerging market currencies.
In summary, with the Asian markets on holiday, FX markets have had a quiet start to the week. However, there are several upcoming events that could impact the market, including central bank speakers and rate meetings. The spotlight will be on the US jobs report on Friday, but none of these events are likely to weaken the strong dollar.