Dollar Is King As Equities Fall
OCTOBER 06, 2021
The U.S. dollar is king this morning as global equity markets are deeply in the red.
Market sentiment, in general, has been volatile over the past few weeks amidst the possibility of the U.S. defaulting on its debt, a global energy crisis, increased supply chain issues likely adding to price pressures, and a chance that the Federal Reserve will begin removing its emergency stimulus.
This morning’s economic docket will take a backseat to the overall market sentiment but is still worth noting. ADP reported that private companies added 568K jobs in the month of September, above the 430K estimated by economists. The print is the highest in three months and could foreshadow strong non-farm payrolls print on Friday.
As we told Reuters News yesterday “An underwhelming print will give the Fed dovish cover, but a blowout reading, paired with rising inflation made worse by the energy crisis will put more pressure on the Fed to being tapering and help the greenback.” Economists expect that the economy added 488K jobs in September, up considerably from 255K in the month prior.
What to Watch Today…
- No major economic events scheduled for today
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The Euro is under heavy pressure this morning. European equities are sharply lower and headed towards a two-month low. The region’s natural gas prices have surged 60% in the last two days, putting a spotlight on the intensifying energy crisis.
EUR/USD traded through its year-to-date low and is now currently testing levels last seen 14 months ago. EUR/USD is now only four-tenths of a percent off the March 2020 high which is seen a major support level for the pair. The Euro is still 7% stronger than the lows of early 2020 at the beginning of the pandemic.
The pound sunk over half a percent against the U.S. dollar on broad greenback strength and souring market sentiment. U.K. bonds’ inflation gauge hit a thirteen-year high. Bloomberg News explains “A market-based measure of expected inflation in the U.K. over the next decade topped 4.0%, the latest evidence of price pressure plaguing the nation.”
The pound is lagging even as investors start to bet that borrowing costs would rise. Interest rate futures are now almost fully pricing in an interest rate hike at the Bank of England’s December meeting as inflation pressures mount. The new expectation is that the Bank of England will have raised rates to 0.75% by November of next year.