FX UPDATE 07/10/2024

 The Dollar edged lower on Monday, following a rally driven by Friday's robust US jobs data and rising tensions in the Middle East. The Dollar's earlier gains were fuelled by a jobs report showing the largest increase in six months in September, a decline in the unemployment rate, and solid wage growth, all indicating a resilient US economy, prompting markets to scale back expectations for Federal Reserve rate cuts. Analysts noted that several factors that had previously pressured the greenback during the summer have shifted, including easing recession concerns. They also said that recent price movements suggest that the market has reached its limits in pricing in a dovish response based on the latest data. “We cannot see a driver for rebuilding structural US Dollar short positions in the next couple of weeks,” stated Francesco Pesole, a forex strategist at ING. “Markets appear to have given up on another 50-bps cut, and inflation figures shouldn’t change that, and while the Middle East situation may not spiral further, the consensus seems to be that a material de-escalation isn’t likely for now,” he added. The Dollar index, which measures the currency against major peers, fell by 0.05% to 102.48. It had increased by 0.5% on Friday, reaching a seven-week high and marking a weekly gain of over 2%, the largest increase in two years. Earlier last week, the index was just above 100, Reuters reports.

The Japanese Yen dipped slightly to 149.10 per Dollar on Monday, marking its weakest level since mid-August, before recovering somewhat to trade around 148.40. This decline followed a drop of over 4% last week, which was its largest weekly percentage decrease since early 2009.

Elsewhere, Sterling was flat at $1.3122 at the time of writing, following last week’s 1.9% decline, its steepest drop since the beginning of 2023. Bank of England Chief Economist Huw Pill stated on Friday that the central bank should proceed cautiously with interest rate cuts, a day after Governor Andrew Bailey suggested that the BoE might take more aggressive action to reduce borrowing costs.

Meanwhile, the Euro was trading at $1.0970, a 0.06% fall.

In India, the Rupee remained near its all-time low, trading at 83.9675 against the Dollar at the time of writing. This was nearly unchanged from Friday's close of 83.9725 and just below its record low of 83.9850. While several negative factors weighed on the currency, the central bank's strong defence helped stabilise it. Additionally, Dollar-Rupee forward premiums fell following strong US data that diminished expectations for aggressive rate cuts by the Federal Reserve.