Dollar and Yen Rebound Stays Limited, Euro Downside Potential Low

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The recovery in the dollar and yen have been slow thus far, hampered by a strong market mood. The S&P 500 closed at a fresh all-time high, and the Dow Jones Industrial Average was not far behind. Major Asian stocks are also up after China’s Evergrande avoided default for the time being by remitting cash for a significant interest payment ahead of a 30-day grace period that expires tomorrow. So far this week, the strongest currencies are New Zealand and Australian dollars, followed by the Swiss Franc. The weakest currencies are the dollar, yen, and loonie. The euro is mixed, but it has the potential to drop in cross markets.

Japan’s manufacturing purchasing managers’ index rose to 53.0 in October from 51.5 in September, higher than the expected 51.6. The PMI service industry index rose from 47.8 to 50.7. The PMI composite index rose from 47.9 to 50.7.

IHS Markit Economist Usamah Bhatti said: The activities of Japanese private companies resumed their expansion in the early fourth quarter of 2021. Panel members usually associate a small recovery with the reduction in COVID-19 cases and the relaxation of pandemic restrictions.

“Private-sector companies have also noticed that the total volume of new business has increased for the first time since April, thanks to the rapid growth of export orders. That is, companies continue to emphasize continuous supply chain pressure and material shortages. As a result, input prices have increased by 13%. The fastest increase in the past year. This led to the largest increase in output costs since July 2018.”

At the same time, the CPI of all projects in Japan rose 0.2% year-on-year in September, which was higher than -0.4% year-on-year. Core CPI (excluding food) increased by 0.1% year-on-year, higher than 0.0%. However, CPI core-core (excluding food and energy) remained unchanged year-on-year at -0.5%.

US Dollar Index continues to fall, nearing 93.60

At the close of the week, the US Dollar Index (DXY), which measures the dollar against a basket of major rival currencies, resumed its downward trend and re-entered the 93.65/60 range. The index quickly fades Thursday’s increase and begins its downturn at the end of the week, retesting the 93.60 zones on Friday at the same time.

The offered position in the dollar has been reinstated in response to a decline in US rates from recent highs: the front end of the curve has receded to 0.45 percent, while the belly and long end have receded to 1.68 percent and 2.12 percent, respectively.

Meanwhile, inflation fears have resurfaced following a rapid surge in the 5y breakeven to the edges of the critical 3.0 percent line, while the 10y breakeven has approached the 2.65 percent mark. The index is still under pressure and has returned to previous lows, reflecting the performance of the US cash market. The dollar’s corrective move came as a result of various central banks repricing their currency, particularly in light of rising inflation and the risk complex’s subsequent improvement.