The end of Q3 nears and we move into the final stretch of 2014. The last few months can be characterised by increased volatility, in some way helped by the Scottish referendum, but more so by dollar strength which has seen the dollar index appreciate over 7% in Q3. This has been an unprecedented move taking the dollar to four year highs as investors ready themselves for the end of tapering and prepare for higher interest rates from the FOMC. This will impact everyone from businesses and individuals to sovereign states and in particular emerging markets many of which have gorged themselves on cheap dollar funding in the past few year and are nervous about higher interest rates.
As we approach month and quarter end there’s likely to be some volatility and the dollar strength could continue as more investors hop on the trade. This could pave the way for another strong quarter for the dollar in Q4 as real money pours back into what is rapidly moving from a funding currency to an asset currency.
The economic calendar this week is full with a huge amount of data to absorb. We commence with confidence figures from the Eurozone and then US data which include personal income and spending as well as pending home sales. Throughout the week there are also PMIs from the UK and US then other highlights include the ECB on Thursday and nonfarm payrolls on Friday. This week’s nonfarm payrolls will be the first of the new quarter and could put a line in the sand for further dollar strength.