US Open Note – Stocks buoyant, dollar slips and gold improves

Sentiment upbeat as US yields retreat; FOMC speakers to draw focus

The recent climb in US stocks appears supported by gains in the technology and communication service sectors. Moreover, expectations of strong earnings and the stabilization in longer-term yields, after a drop, are not aiding the greenback. Despite the pickup in sentiment, inflationary concerns and the energy crisis seem to be risks that may drag on for a while longer.

The dollar index surrendered ground from the 94.00 mark down to 93.50, and this weakness in the reserve currency has extended over the broader forex arena. Surprisingly, the USD/JPY pair is holding above the 114.00 mark as the antipodean currencies improve and the dollar falters. The euro has climbed to $1.1660, while the pound has surpassed the $1.3800 mark.

The miss in US housing data may keep the dollar subdued before FOMC speeches later on in the day. US building permits in September dropped to 1.59M, from 1.72M in the previous month, while the number of new houses that were being built eased a little from last month’s numbers, coming in at 1.56M.

Investors’ ears will be locked on FOMC members speaking later on for clues validating the anticipated November tapering. No deviation from tapering is expected, so anything that casts doubt on that prospect could inflict extra damage on the dollar.

Britain and the Eurozone continue to be hit by risks around price pressures from rising fuel prices more so than other regions as well as supply chain shortages. The euro seems to be guided by dollar weakness lately, while upcoming inflation and PMI data in the following days could exacerbate price moves. This is the scenario for the common currency as the ECB’s accommodative stance provides the euro with limited upside.

On the other hand, although the UK is delivering data on inflation, PPI, retail sales and the manufacturing PMI over the next days, Wednesday’s inflationary figures will likely be the data that fuels to a large extent the Bank of England’s rate hike expectations by the end of the year, especially as BoE Governor Bailey highlighted that action was needed to contain inflation from running away.

Antipodeans outperform and commodities hold firm

WTI futures are holding around the highs at $82.80 per barrel. Commodity prices remain elevated with the drop in the US 10-year yield seeming to have also assisted gold in reaching the $1,781/oz level.

The antipodean currencies were among the top gainers today, with the kiwi and aussie improving by 0.94% and 0.75% respectively against the dollar. The RBA minutes were dovish, conveying the message that hiking rates would be counterproductive towards the labour market in attempts to cool the housing sector. The central bank has repeated that it will not hike until inflation holds within the 2-3% bracket.

Later on today FOMC members Daly, Bowman, Bostic and Waller are speaking at 15:00, 17:15, 18:50, and 19:00 GMT respectively.

Then at 23:50 GMT, Japan will release its trade balance results.

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