USD firmer versus core majors - Scotiabank

The US Dollar (USD) is mixed overall on the day so far but the DXY is slightly firmer as dollar gains are concentrated mainly among the core majors, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD softer against commodity FX

"High beta/ commodity FX is generally outperforming, however, reflecting a 5% jump in crude oil prices and a generally firmer commodity complex, which includes a mild rebound in gold after support around $4000 held losses earlier this week. High energy prices are a terms of trade negative for the JPY, which is one of the main underperformers on the day. Oil gains reflect a kneejerk reaction to news yesterday afternoon that the US would sanction Russia's largest energy producers."

"The EU also imposed new sanctions on Russia's energy infrastructure. Global stocks are little changed, with many indices holding close to record highs. Bonds have sold off, with Treasurys underperforming and driving the 10Y yield back to near 4%. Volatility has picked up a little in response to evolving geo-political risks. Aside from Russian sanctions, the US is considering curbs on software exports to China, reports yesterday indicated. Tech stocks responded negatively to that news."

"A WSJ report that the US is in talks about taking equity stakes in quantum computing companies in return for federal funding may help lift the mood, however. We do get a smidge of US data today--from the KC Fed's manufacturing survey--but markets are focused a bit more intently on tomorrow's US September CPI report. A 25bps cut in the Fed Funds target rate is fully priced in and the inflation data seems unlikely to deter market expectations significantly. Still, the DXY remains on track to retest the mid-99 area in the near-term and may extend gains into November before a consolidation or correction develops."