Dollar clings to record highs ahead of US GDP growth

Inflation in Germany is expected to jump to 9.4% in September, raising concerns about more aggressive monetary policy tightening, weighing on European stock markets on Thursday. Bond yields have soared in recent weeks as central bankers have increased interest rates substantially to contain hot inflation, potentially tipping the global economy into recession.

Investors are closely watching the latest US and Canada economic growth in Q3 and initial jobless claims in the US. The US economy is forecast to contract another 0.6% in the last three months. 

After experiencing its worst day since March 2020 on Wednesday, the USD index, which measures the greenback against sterling, the euro, and four other currencies, rebounded 0.66% to 113.78.

There is a growing pushback from official sources, particularly in Asia, where Japan, South Korea, India and Indonesia have intervened in financial markets to support their currencies and assets to varying degrees.

Sterling and the euro fell Thursday as relief over the Bank of England's intervention in the bond markets faded. In contrast, the US dollar clawed back a recent dip experienced yesterday.

British pound

After the Bank of England announced an emergency bond-buying plan Wednesday to boost a gilt market that had been in freefall with the pound, the British currency posted the most daily rise since mid-June, but still remains around the 35-year lows.

Markets are now pricing a UK terminal rate above 6% next year, and while they can debate whether this is a reliable gauge of expectations with this level of market stress, it’s no doubt true that investors are positioning for a sizable reaction.

Euro

In addition to the recent escalation of the Eurozone's energy crisis, Sweden's coast guard announced a fourth gas leak on the damaged Nord Stream pipelines, which weighs on the single currency. Amid nagging doubts about Britain's economic management and global growth prospects, the euro weakened to $0.9642. The European Union believes the leaks on the pipelines carrying Russian gas to Europe were caused by sabotage, and every attempt to disrupt their energy infrastructure will be met with a "robust" response.

There will be a close eye on the appearances of BoE officials David Ramsden, Silvana Tenreyro, and Huw Pill later on Thursday.

Crude oil 

On Thursday, oil prices fell, as a stronger dollar parried the previous day's gains by more than $3, but indications that OPEC+ producers might cut output capped losses. Following a temporary dip in the dollar index and a sharp decrease in U.S. fuel inventories, the benchmarks rebounded in the previous two sessions from nine-month lows earlier this week. Despite this, the dollar index rose again on Thursday, dampening investor risk appetite and fueling fears about a possible recession.