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Rate hike talks boost the dollar

The dollar continues to move higher this morning after a number of Fed speeches support the movement for a December rate hike. Overnight, comments from Fed Vice Chairman Stanley Fischer reiterated comments made Wednesday from Fed Chairman Yellen that the 2% inflation target was not that far off and despite some worries, the American economy may be more prepared for a hike than some believe. The Bank of England held their most recent policy meeting, and not to anyone’s surprise, left rates unchanged. Also on the docket was the Quarterly Inflation Report, which caused for a bit of selloff in Sterling following some surprising comments from Chairman Mark Carney. The euro, after falling to July lows on Wednesday, rebounded a touch after some second tier factory data. Stocks in Asia and Europe were mostly a sea of green as Fed optimism continues to wash over global markets, and points to another higher open in North America.

The euro made a run at July lows on Wednesday but it can really be blamed on a US dollar led move, based on the Fed comments mentioned earlier. It’s been fairly quiet this week from a European data perspective with only Chairman Draghi eliciting much after he repeated claims the central bank is keeping all measures on the table to extend the current QE program. Despite much weaker German factory orders for September (-1.7% vs +1.1 exp.), the EUR/USD rate has bounced nicely this morning and is about 0.5% above this week’s lows. Bank of England Head Mark Carney made some interesting comments at the Quarterly Inflation Report, stating that if and when hikes begin, the process to normalize would be more gradual and limited. Sterling, which had been unchanged after the most recent BoE policy meeting, lost about 1% on these remarks. Mr. Carney also noted inflation could return to the bank’s 2% inflation target at some point in the next two years.

More Fed-speak highlights a busy North American session. It is Thursday which means its jobless claims day, and this week Wall Street is focusing on another strong print around +262k. The number of Americans filing first time unemployment claims remains at multi-year lows and continues to show promise for the labor sector, a lynch-pin for higher interest rates in the US. But today’s session will most likely by driven by Fed speeches. In an almost unprecedented onslaught, there will be six FOMC members making remarks today, all most likely carrying the touch toward December’s “live” meeting. Chairman Yellen and Vice Chairman Fischer both made hawkish comments earlier in the week and continue to beat the drum for rising rates. They will speaking AGAIN at different stages in the day. The US dollar found a boost on Wednesday after Chairman Yellen’s testimony reiterated her optimism on the American economy. Tomorrow, October’s payrolls report will be released and Wall Street is hopeful for a nice rebound of +185k from September’s dismal report.

At 10am EST, markets will get a peek at the Canadian Ivey PMI result, anticipated to come in at 54 – above last month’s 53.7. The Ivey PMI released by the Richard Ivey School of Business captures business conditions in Canada, which should remain comfortably in expansionary territory for the seventh straight month. The Loonie has been up and down this week, slipping a bit late Wednesday as the greenback rose versus most major currencies. On Friday, Canada’s employment numbers for October will also be released and markets are expecting similar result to September, an increase of 10k. Unemployment remains at 7.1% up north while the participation rate – like the US – remains at multi-year lows. As is usually the case, the devil is in the details so expect a lot of volatility tomorrow morning in USDCAD after the release of both reports at 830am.

Further reading:

EUR/USD: Trading the US Non-Farm Payrolls

US jobless claims rise to 276K