Smile on dollar bulls
A look at the day ahead from Dhara Ranasinghe.
Just for a minute, let’s forget about rising bond yields and record-high stocks. Forex markets are where the action is.
The dollar index, a measure of the greenback’s value against other major currencies, is at its highest since July 2020. Against the yen, the dollar is at its highest since March 2017.
With Tuesday’s strong U.S. retail sales numbers further bolstering rate-hike expectations, major currencies are clearly dividing into two camps — those propelled higher by prospects of tighter monetary policy behind them and those that are not.
Like the greenback, Britain’s pound is in the first camp. News earlier on Wednesday that British inflation surged to a 10-year high last month, rising 4.2% in annual terms, is boosting the likelihood of a Bank of England rate rise, possibly as soon December.
No surprise then, that sterling has hit a 21-month high against the euro and even managed to notch a one-week high against the robust dollar.
But the ECB’s pushback against market pricing for a rate rise next year, has left the euro languishing at 16-month lows versus the dollar. More pain is likely for the single currency.
Stock markets were also on wobbly ground, with MSCI’s world stock index pulling back further from record highs, while U.S. and European stock futures were flat to marginally lower.
Rising COVID-19 cases in some parts of the world is another source of angst. MSCI’s index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) skidded 0.5% and was set for its biggest fall this month. With South Korea reporting its second-highest daily new coronavirus infection, Seoul shares led the way down with a 1.2% fall.
Key developments that should provide more direction to markets on Wednesday:
- Japan’s exports growth hits 8-month low as auto trade slides
- Speech by Oystein Olsen, governor of Central Bank of Norway,
- Russian Central Bank Governor Elvira Nabiullina speaks
- Bank of Iceland meets
- Fed speakers: Bank of Atlanta President Raphael Bostic; Bank of Cleveland president Loretta Mester; Chicago President Charles Evans
- Treasury 20-year bond auction
- U.S. initial jobless claims/Philadelphia Fed business index
- Europe earnings: Manchester United,
- US earnings. Baidu, Lowe’s Target, Cisco, Nvidia
- Sage posts 10% drop in operating profit after investing in cloud