Dollar resumes gains amid risk-off mood, Congress drama, two US data points eyed

Here is what you need to know on Friday, October 1:

Markets are kicking the last quarter of 2021 on the back foot as soaring energy costs, fears of Fed tapering and US political infighting weigh on sentiment. The greenback is gaining ground against all assets despite falling yields. US Core PCE and the ISM Manufacturing PMI are closely watched.

Risk-off: September was the worst month for US stock markets since March 2020, and October has also begun with red on the screens. The Federal Reserve’s upcoming tapering announcement has moved away from the driver’s seat in determining sentiment. Nevertheless, the dollar remains bid on safe-haven flows.

Energy crisis: Chinese authorities are seeking to accumulate natural gas “at all costs” and according to reports, say that power outages are not to be tolerated. The news adds to already surging costs in Asia and also in Europe before cold weather has arrived in earnest. Higher costs could derail the recovery even if blackouts are avoided.

Congress: Democrats delayed a vote on a bipartisan infrastructure bill in response to objections from the progressive wing, who want guarantees about the larger expenditure bill. House Speaker Nancy Pelosi hopes to push through economic legislation on Friday.

US lawmakers quickly passed a law funding the government through December 3, averting a government shutdown. However, they have yet to raise the debt ceiling, leaving the remote possibility of default in mid-October. 

EUR/USD is trading well below 1.16, at the lowest since November 2020. Eurozone inflation figures are set to show an increase in the annual Consumer Price Index from 3% to 3.3%. German and Spanish figures exceeded estimates. Final Manufacturing Purchasing Managers’ Indexes are also eyed. 

GBP/USD is trading around 1.3450, off the 2021 lows but under pressure. Britain is still grappling with shortages at petrol stations. Final Manufacturing PMI is also of interest. 

Gold is trading around $1,750, clinging to gains made on Thursday. The precious metal remains dependent on yields. 

Core Personal Consumption Expenditure, the Federal Reserve’s preferred gauge of inflation, is set to show moderation in August after hitting 3.6% YoY in both June and July. Fed Chair Jerome Powell said he expects inflationary pressures to ease in the first half of 2022.

See US Core PCE Preview: Only a sharp fall in the Fed’s favorite gauge could dethrone King Dollar

USD/CAD is trading around 1.27, rising as oil prices lag behind natural gas costs and ahead of Canada’s publication of monthly growth figures for July. A small contraction is on the cards after the nation reported a growth rate of 0.7% in June. 

Cryptocurrencies are mixed on Friday, with Bitcoin trading around $44,000, Ethereum just above $3,000, and Ada at around $2.10. 

The ISM Manufacturing PMI is published later in the day and serves as the first hint toward next week’s all-important Nonfarm Payrolls. The indicator is set to show robust growth but persistent inflationary pressures.