Gentium FX | Daily Report - 6th October 2022 - US Dollar Remains In-Demand

GBP: Sterling has absorbed a large share of the negative news during the post-tax event UK market turmoil and it now appears to be trading on the stronger side. Investors remain concerned that poor economic fundamentals could keep the Pound under pressure. The rollback of the memorandum of historic tax cuts by Finance Minister Kwarteng saved the UK economy from unveiling the biggest increase in borrowing since 1972. However, the negative outlook on Bank of England's (BoE) Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) by Fitch Ratings and the revised outlook to Negative from Stable, affirming AA- could impact the recent rally in the Pound vigorously. Today, investors will keep an eye on the Bank of England Decision Maker Panel survey, which collects inflation expectations from company executives, and on a speech by MPC member Jonathan Haskel.

EUR: Euro investors remain cautious amid escalating geopolitical tensions between the West and Russia over the Ukraine situation. The European Union (EU) has backed new sanctions against Russia, including the oil price cap on Wednesday. Markets now await more news on this. Today, European Central Bank minutes should shed some light on the quantitative tightening discussion and the size of the next rate hike. Eyes will also be on Eurozone retail sales.

USD: The US Dollar downtrend has started to prove unsustainable pretty quickly as the greenback made a solid comeback as Fed officials reiterated the US central bank’s commitment to controlling inflation and reaffirmed expectations for more aggressive policy tightening. The markets have been pricing in the possibility of another supersized 75 bp Fed rate hike move in November. This, in turn, pushed the US Treasury bond yields higher and acted as a tailwind for the US Dollar. The economic calendar in the US is quite light after yesterdays ISM Services beat expectations. All eyes will be on tomorrow’s non-farm payroll data.

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