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Market Brief, North America

Markets rally on AI hopes, yen continues its descent

Investors are making up for a lack of actual intelligence on the state of the economy by betting on artificial intelligence instead. The dollar is attracting inflows, mid-curve Treasury yields are pushing higher, and equity futures are pointing to further gains at the open after OpenAI and Advanced Micro Devices yesterday announced they would collaborate to build AI data centres, with the ChatGPT maker agreeing to buy tens of billions of dollars’ worth of chips from AMD while taking a 10-percent stake in the chipmaker over time. The euro is consolidating around lower levels as the dust settles after French...

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Political turmoil plays havoc with currency markets, boosts dollar

The dollar is again winning the cleanest-dirty-shirt contest this morning as mounting political turmoil in Japan and the euro area casts a pall over currency markets. The yen is down almost 2 percent and Japanese equity markets are soaring after Sanae Takaichi unexpectedly triumphed in the Liberal Democratic Party’s leadership race, defying polls that had put her rival, Shinjiro Koizumi, ahead among party grandees. Investors believe Takaichi—an advocate of looser fiscal and monetary policy in the mould of Shinzo Abe’s “Abenomics”—could seek to unleash fresh government stimulus while pressing the Bank of Japan to pause its tightening. Options markets have...

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Currency trading ranges shrink as markets continue to ignore shutdown risks

Rumours of the dollar’s shutdown-inflicted death have been greatly exaggerated. The greenback is holding firm against its major rivals this morning despite confirmation that the US government will remain crippled into a second week, indicating that traders don’t expect the political impasse to result in any meaningful diminishment in the global appetite for American financial assets. On a week-to-date basis, the pound and euro are up 0.3 percent against the dollar, the Canadian dollar and Mexican peso are down 0.2 percent, and the Australian dollar is sitting on a nice circa-1-percent gain after the Reserve Bank signalled a more cautious...

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US Consumer Demand Holds Up, Supporting The Dollar’s Rate Premium

The Federal Reserve’s preferred inflation measure climbed as expected in August and personal income and spending numbers beat forecasts, making it more difficult to justify an aggressive course of rate cuts in the coming months. Data released by the Bureau of Economic Analysis this morning showed the core personal consumption expenditures index rising 0.2 percent from the prior month, closely matching market estimates. On a year-over-year basis, core price growth held at 2.9 percent, also aligning with economist forecasts for a 2.93-percent increase. The overall personal consumption expenditures index climbed 0.3 percent relative to the prior month, and was up...

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Dollar Advances As Easing Expectations Pull Back

The dollar is trading near a two-week high this morning as traders pull back on overly-optimistic monetary easing expectations and adjust positions amid heavy quarter-end rebalancing. The Canadian dollar, British pound, euro, and Japanese yen are all holding near the lower ends of their technical trading ranges, Treasuries are holding steady, and equity markets are licking their wounds after a modest pullback from record heights late last week. Swaps traders have 40 basis points in easing priced in for the final two Federal Reserve meetings this year, down from almost 50 after a series of cautious statements from policymakers, and...

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