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  • richard evans

USD weaker on dovish comments from Fed officials

Good morning

US nonfarm payrolls were the trigger for more volatility Friday. The headlines was stronger than expected at +261k, with previous reading revised higher as well, however the unemployment rate increased to 3.7% from 3.5% last time. USD did move higher initially with GBPUSD trading down to 1.1145, EURUSD down to 0.9750. We then saw a complete reversal for USD. Come the close both GBPUSD and EURUSD were considerably higher at 1.1385 and 0.9965 respectively. US equities ended the day higher.

The reason for the turn was largely put down to dovish talk from Fed officials. Collins warned of the risk of over tightening, while Evans suggested Fed could think about a pause in rate rises at some point next year. Collins speaks again today so will be interesting to see if she sticks with the cautious tone.

Asian shares have started the week on a firmer footing, despite China making it clear they are still pursuing their zero-Covid policy after case numbers there jump to a six month high, spoiling some of the optimism felt last week on rumours they may relax their policy. I have seen some talk that China are in talks to potentially use a western Covid vaccine, perhaps prompted by the meeting between German Chancellor Scholz and China President Xi. I remember almost a year ago writing that the Chinese Sinopharm vaccine showed far less effectiveness than Western vaccines, particularly against new variants. Their zero-Covid plicy could be a result of the vaccines being less effective. Chinas trade balance was released overnight, showing a weaker than expected surplus of $85.15bn, some $10bn down on forecasts but still a pretty hefty monthly surplus.

CBA have said they see just one more rate rise from RBA which has perhaps been partly responsible for GBPAUD making its way up from its close around 1.7570 to 1.7680 this morning, while AUDNZD has dipped below 1.0900 as I type.

US midterm elections tomorrow, Republicans expected to win both houses although the Senate is not so clear. Trump has been speaking, saying the Democrats have turned the US towards communism. Yes, Trump appears to be making something of a comeback.

USD pushed higher on the open overnight but has slipped back as I type, with GBPUSD 1.1415 and EURUSD just a few pips short of 1.0000. A relatively quiet day ahead in terms of economic data, we will hear from several central bank official but attention of course is fixed on US elections and Thursdays US inflation numbers, plus UK’s GDP numbers early Friday morning. The calendar is otherwise reasonably light but whether this means we are in for some peace and quiet remains to be seen.

The great and the good have all flown to Egypt for COP27 where they are likely to decide that the rest of us should stop air travel in order to save the environment. An important topic of course but even those at the top must see the irony in their actions. Speaking of those at the top, can it be true that Elon Musk is having to ask some of the staff he let go last week to return to work, saying some were fired in error and others they have worked out they will actually need. Surely not! Still, with large firms such as Apple and Meta talking about job losses, I’d expect anyone asked to return will probably do so, and be grateful for it.

- 08.40 ECBs Lagarde speaks

- 09.30 ECBs Panetta speaks

- 20.40 Feds Mester, Collins speak

- 23.30 Japan household spending

- 23.30 AUS Westpac consumer confidence

- 00.01 UK BRC sales

- 02.00 RBNZ inflation expectations

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