Weekly Fundamental US Dollar Forecast: November Taper after NFP

US DOLLAR WEATHERING MIXED DATA

Weekly Fundamental US Dollar Forecast: November Taper after NFP

After good data releases earlier in week, modest gains were seen for the US Dollar via the DXY Index. However, Friday's disappointing September US NFP report saw a decrease in dollar strength. The DXY Index only gained 0.04 percent, led by a stronger US/JPY which gained +1.03%. The EUR/USD fell by -0.19%. However, the GBP/USD gained +0.50%. However, the bond and rates markets have been reducing their most aggressively hawkish expectations for the Federal Reserve since the outbreak of the coronavirus pandemic.

US ECONOMIC CALENDAR EYES SECOND HALF OFF WEEK

Another busy docket will be held in October with event risk based out the US. Following the September US NFP report, several Federal Reserve speakers and three 'highly rated' events will be on focus. These events typically cause significant volatility in FX markets. The second half of this week will bring you all the important economic data.

  • Wednesday, October 13th, will see weekly US MBA mortgage applications (CPI) and September US inflation report(CPI). In the afternoon, the September FOMC meeting Minutes and a speech from Fed Governor Lael brainard will be available.
  • On Thursday, October 14th, Fed Governor Michelle Bowman will give a speech before the release of weekly US jobless claims figures and the September US produce price indic (PPI) data. Raphael Bostic, Atlanta Fed President, will also speak. The September US budget statement and remarks of Richmond Fed President Tom Barkin are to be delivered in the afternoon.
  • Friday, October 15th, will see the release of the September US retail sales report and preliminary October US Michigan consumer survey. John Williams, President of the NY Fed, will speak in the afternoon.

Based on data so far, the Atlanta Fed GDPNow forecast for the quarter is at its lowest estimate at +1.3% annually based on data about 3Q'21. "An increase in the nowcast for third-quarter REAL gross private domestic investment growth of +10.5% to +10.7% was offset with a decrease of nowcast for third-quarter real personal consumption spending growth of +1.1% and +1.0%."

The 3Q'21 Atlanta Fed GDPNow forecast growth update is due Friday, October 15.

HAWKISH FED EXPECTED TO STILL BE EXPECTED AFTER THE US NFP IN SEPTEMBER

Eurodollar contracts can be used to determine whether a Fed rate increase is being priced in. This involves comparing the differences in borrowing costs for commercial banks over a time period in the future. The chart 2 below shows the spread in borrowing costs for the December 2023 and October 2021 contracts. This allows us to see where interest rates will be by December 2023.

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