Market Drivers – US Session 26/10/2022

The American dollar resumed its journey to the south, falling against its major rivals. The EUR/USD pair reclaimed parity and approaches 1.0100 ahead of preliminary Q3 Gross Domestic Product estimate in the United States, September Durable Goods Orders reading (expected to up by 0.6%) and the European Central Bank monetary policy decision as the dollar is still under pressure amid retreating government bond yields.

Spot gold is up, now at $1,665 a troy ounce, while crude oil prices surged, with WTI changing hands at $88.10 a barrel. On the other hand, Wall Street closed mixed near its daily opening, trimming early gains.

Economic Data

The US economic calendar witnessed the release of the following data:

• Goods trade deficit rises 5.7% to $92.2 billion in September
• Exports fall 1.5%; imports increase 0.8%
• Wholesale inventories advance 0.8%; retail up 0.4%
• New home sales drop 10.9%; August sales revised down

Other Developments

News from China indicated that the country put Wuhan under partial lockdown, where the coronavirus started.

The Canadian dollar was the worst performer vs the greenback. The Bank of Canada hiked its benchmark interest rate by 50 bps, missing the market’s expectation of a 75 bps to 3.75%. Policymakers noted mounting concerns about a potential global economic downturn were behind such a decision. USD/CAD trades around 1.3560.

GBP/USD trades at around 1.1630, despite some fiscal turmoil in the UK. On Wednesday, UK finance minister Jeremy Hunt announced the medium-term budget plan will be delayed to November 17. The new government is struggling with a fiscal hole of around £35 billion. The delay was discussed with BoE Governor Andrew Bailey, according to Hunt. The BoE will announce its monetary policy decision next week, and market players are quickly reducing their bets on another large rate hike.

Thursday will be quite a busy day, as the US is expected to report that the economy grew in the three months to September. The preliminary estimate of the Q3 Gross Domestic Product is foreseen at 2.4%, reversing the negative trend from the previous two quarters. It will also mean the country is no longer in a technical recession and could be read as an opportunity for the US Federal Reserve to maintain the aggressive tightening pace, giving the dollar some room to recover.

At the same time, the European Central Bank will announce its latest monetary policy decision. The central bank is expected to hike rates by 75 bps, accompanied by a dovish message, as it seems unlikely President Christine Lagarde and Co. will keep raising rates at such an outstanding rate.

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