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USD Index Set to Post 0.35% Weekly Advance Amid Waning Equities

  • Pressure on the greenback in early US trade on Friday was largely soaked up, with late equity weakness amid further geopolitical concerns providing support to the dollar as we approach the close. Despite the USD index residing in moderate negative territory on the session, it looks set to post a 0.35% advance on the week overall. Large two-way swings for US yields and weakness for equity benchmarks have been the dominant drivers for G10 pairs, however, most are in close proximity to the prior week’s closes.
  • Initial headlines on Friday suggesting that ceasefire talks may be progressing well lifted the mood in currency markets, most notably by EURUSD rising from session lows of 1.0535 to within a whisker of the 1.0600 mark.
  • However, the weakness for the equities approaching the weekend close as sentiment dampened on reports of increased ground incursions into Gaza from Israel produced a renewed greenback bid. This saw the likes of EURUSD and GBPUSD roughly 40 pips off the earlier highs before stablising.
  • Some notable divergence between notorious safe havens on Friday sees CHFJPY extend declines on the session to roughly 1%, which eats into a healthy portion of the October rally.
  • The Japanese yen is the best G10 performer on Friday ahead of next Tuesday’s BOJ decision. We anticipate that the BOJ will uphold its existing policies in the forthcoming announcement. This includes keeping the short-term interest rate at -0.1%. In a Reuters survey of economists conducted between October 17-25, 25 out of 28 economists expected no change in policy at the upcoming meeting, while the remaining three—Barclays, JP Morgan, and UBS—predicted that the BOJ would begin unwinding its accommodative stance.
  • A busy week next week kicks off with Eurozone inflation readings. The Fed and the BOE then take centre stage before the US employment report on Friday.

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