USD Held Up By Hawkish Fed Comments – Traders Await NFP Tomorrow

The US Dollar continues to hold near highs ahead of tomorrow’s key employment data. Yesterday’s ADP employment reading, the first since May, came in below forecasts at 132k vs 300k expected. Despite the miss, USD was underpinned by hawkish comments from Fed’s Mester who said that she sees rates peaking above 4% and sees no likelihood of rate cuts next year. On the back of hawkish comments from Fed’s Williams earlier in the week, USD bulls are holding their nerve ahead of the NFP tomorrow.

Key Factors for Today

- USD holding near highs ahead of NFP tomorrow
- ADP missed forecasts but hawkish Fed comments helped support USD.
- Equities plunge on central bank tightening expectations, rising bond yields, inflation fears
- USD & CHF lead in FX – Swiss CPI beat reinforces hawkish SNB expectations
- EUR weaker following record CPI print
- Metals and oil sink as bond yields rise

Coming Up

- EUR Eurozone unemployment rate
- USD US unemployment claims
- USD ISM manufacturing index

Equities Tank As Bond Yields Continue to Rise

Equities markets were seen plunging across the board yesterday, with many starting the new month in the red today. Rising bond yields on the back of hawkish comments from Powell last week have fuelled a sharp shift in sentiment for risk assets with bond prices and stock prices tumbling alike. Hawkish expectations ahead of the ECB next week are seeing European asset prices firmly lower with the DAX now down over 8% from August highs. Similarly, inflation expectations and political uncertainty in the UK have seen the FTSE sinking almost 5% from August highs.

USD & CHF Lead in FX

In FX, USD and CHF have taken the lead as the strongest performers over the European open on Thursday. Stronger-than-expected Swiss CPI today has reinforced expectations for further SNB rate hikes in the near-term, in line with the bank’s own guidance. NZD and CAD have both seen the weakest performance so far today. The downturn in risk assets this week has hit these currencies hard with rising bond yields leaning on commodities prices across the board. CAD In particular has been hurt by the reversal lower in crude prices this week.

EUR Weaker Following Record CPI Print

EUR has been weak today also on the back of yesterday’s record eurozone inflation print for August. CPI was seen toping 9% for the month, raising fears of a larger 75bps hike from the ECB when it meets next week. With inflation still surging higher, the ECB appears to have little choice but to hike by more than July’s 50bps increase, despite rising growth fears.

Metals & Oil Plunge – Silver Hits Fresh 2022 Lows

In the metals and commodities space, gold and silver have both continued lower this week. With silver prices breaking down to fresh 2022 lows as rising bond yields and falling equities prices combine to push the metal lower. Oil prices have come back under pressure also. Despite the EIA reporting a further, large drawdown last week, hawkish Fed sentiment is weighing on oil prices here. The crude demand outlook is also suffering from rising recessionary concerns.