Dollar Strength Linked to Flight to Quality Buying

CURRENCY FUTURES

The U.S. dollar index is lower today after yesterday reaching its highest level since July 10. Much of the strength in the greenback recently is linked to flight to quality buying in light of geopolitical tensions in the Middle East and favorable interest rate differentials.

The fundamentals and technicals remain supportive to the U.S. dollar.

The HCOB Flash euro zone composite PMI improved to 49.7 in October from a seven-month low of 49.6 in September, but was slightly below forecasts of 49.8.

Traders have fully priced in a 25 basis point rate cut from the European Central Bank in December.

Sentiment among U.K. manufacturing companies declined at the fastest rate in two years ahead of finance minister Rachel Reeves’ first budget next week.

The Confederation of British Industry’s measure of business sentiment dropped in the three months to October to -24% from -9% in the three months to July. In addition, factories reported easing cost pressures, which increased at the slowest pace in four years.

STOCK INDEX FUTURES

Stock index futures are mostly higher despite rising geopolitical tensions in the Middle East.

Jobless claims in the week ended October 19 were 227,000 when 247,000 were expected.

The September Chicago Federal Reserve national activity index was -0.28 when 0.20% was estimated.

The 8:45 central time October manufacturing PMI is anticipated to be 47.6, and the 9:00 September new home sales report is predicted to be 718,000.

The October Kansas City Federal Reserve manufacturing index will be released at 10:00 and is forecast to be -16.

Futures are performing well on today’s news.

INTEREST RATE MARKET FUTURES

Futures are higher across the board today, although yesterday the December 30-year U.S. Treasury bond futures declined to the lowest level since July 5.

Jeffry Schmid of the Federal Reserve earlier this week said he  would not prefer outsized moves, while Fed’s Patrick Harker called for a more moderate approach to further easing.

Currently there is a 95% probability that the FOMC will lower its fed funds rate by 25 basis points at its November 7 policy meeting, and there is a 5% chance that the FOMC will keep its key interest rate unchanged at 4.75% – 5.00%.

 

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