Daily Market Update

Dollar Remains Strong; Eyes on Italy

October 03, 2018

The Bloomberg Spot Dollar Index is up for a fifth straight day, but barely. Most traders are focused on events abroad, namely Theresa May’s speech and developments with the Italian budget.

Overview

But there is still plenty of domestic news that warrants our attention.

This morning’s economic docket showed that ADP showed a sharp rise in private payrolls. Private jobs jumped to 230K in September, beating estimates of 184K. Last month’s modest number was also upwardly revised. The print could foreshadow a strong Non-farm payrolls print on Friday.

Throughout the day, five different Fed policy makers will make appearances. Last week, the Federal Reserve lifted rates by 25 basis points for the third time this year. The so-called “dot plots” and commentary from Fed Chair Jerome Powell have yet to drive traders to overwhelmingly expect the central bank will raise rates again in December. Fed Fund futures show a 71% chance. Commentary from this week’s Fed speakers could shift the balance towards a fourth rate hike, which would boost the dollar slightly.

EUR

The Euro briefly shot higher overnight before losing its steam and giving up its gains. The Euro jumped on news that Italy’s government will pledge to cut the nation’s deficit after pressure from the E.U. Italy will reportedly pledge to cut its deficit to 2.0% in 2021. The previous proposal was to maintain a 2.4% deficit. Italian stocks and bonds recovered after the news broke but the Euro’s rally was short-lived.

The Euro has been under intense pressure over the past week on fears that Italy could be the next Greece. The major difference being that Italy is the Eurozone’s third largest economy.

GBP

The Sterling has seen increased volatility over the course of the last two hours into the New York open. Sterling touched a three-week low before quickly recovering as Theresa May gave a speech this morning to the Conservative Party conference. May essentially stuck to the script and defended her Brexit plans. May has seen decent within our own party so today’s speech has been seen as an attempt to consolidate support.

Data seems to have had little effect on the GBP/USD. HIS Markit’s Purchasing Manager Index fell to 53.9 n September, down from 54.3 the month prior and missing estimates.

 

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