October: A month to forget!
may be certain about is for volatility to remain elevated especially with the U.S. midterm elections is just around the corner.
Despite the rally in equities, the Dollar rose to its strongest level in 16 months, reaching a high of 97.20 on Wednesday.
The Greenback was supported by a larger than expected ADP employment report showing the U.S. private sector payrolls increased by 227,000 in October, the highest in eight months. However, the Greenback couldn’t hold its gains today as many major currencies reached significant support levels, particularly the Euro. For the Dollar to keep rallying it requires Friday’s nonfarm payrolls report to beat economists’ expectations, especially on wages. If wage growth accelerates further the Federal Reserve may have no excuse to turn less hawkish, thus providing further push to U.S. Treasury yields.
The Pound rallied sharply on Thursday on reports that Theresa May had struck a deal with Brussels for British financial services companies to continue operating in European markets after Brexit. However, with the U.K. remaining far from striking an agreement to resolve the Irish border issue, the currency gains may quickly evaporate.
Traders’ attention will turn to the Bank of England monetary policy decision which is expected to keep interest rates on hold. While Mark Carney’s speech and the Quarterly Inflation Report may move the Pound slightly, it’s still all about the Brexit deal that will decide the fate of the currency.