Dollar Flat Despite Rising Risk Appetite

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Dollar Flat Despite Rising Risk Appetite

OCTOBER 07, 2021

The U.S. dollar started yesterday’s session at multi-month highs versus many of its counterparts as risk sentiment was in a tailspin.

Overview

Equities turned around yesterday afternoon, bolstered by progress surrounding the debt ceiling.  Senate Republicans indicated they would be open to a short-term funding bill that will essentially push out the fight until December.  As the fear of imminent default faded, stocks rallied.  However, the U.S. dollar did not give up much of its earlier gains.  Indeed, the greenback is mostly flat overnight even as global risk ticks higher.  Overall, the Bloomberg Spot Dollar Index is up 0.4% so far this week.

The lack of large moves overnight possibly indicates that traders are in “wait and see” mode ahead of tomorrow’s much anticipated Non-farm payrolls reportMarket participants will be quick to judge the labor market report and its possible effect on the Federal Reserve’s decision-making.

This morning’s docked painted a brightening picture of the labor market.  Weekly jobless claims fell 38K to 326K, lower than the 348K estimated.  Continuing claims also dipped.

What to Watch Today…

  • No major economic events scheduled for today

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EUR  

The Euro is slightly higher this morning but overall near the weakest level in 14 months.  There was not much in the way of economic data, but the European Central Bank did release the minutes of their latest meeting.

There were few surprises as the ECB stressed the importance of the “flexibility” of their pandemic purchase plan (PEPP).  The ECB had previously announced a “moderately lower pace ” of its monetary easing.  ECB Governing Council member Yannis Stournaras said that investors shouldn’t expect premature interest rate hikes, despite spiking inflation pressures.

CAD  

The Canadian dollar is a touch stronger against the U.S. dollar as improved risk sentiment has hampered further U.S. dollar strength.  The uptick in the loonie comes despite a sharp pullback in the price of oil.  WTI fell 1.3% overnight, its second day of declines after touching a 7-year high earlier this week.

Bank of Canada Governor Tiff Macklem will speak at noon today and we will be looking for any clues on the central bank’s plans for tapering or rate hikes.

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