UK fiscal statement brought forward.

The US ISM manufacturing index retreated to 50.9 for September from 52.8 in August which was below consensus forecasts of 52.2 and the weakest reading since May 2020. New orders dipped back into contraction territory, also recording the weakest reading since May 2020 while there was a marginal advance in production.

The employment index also indicated a decline on the month while the prices index retreated to 51.7 from 52.5 and the lowest reading since June 2020.

New York Fed President Williams stated that the policy was still not restrictive for growth and that there are still more rate hikes ahead. He added that the Fed is cooling inflation, but underlying pressures are still strong.

US Treasuries edged higher into Monday’s New York open with the yields drifting lower. There was a more substantial move after the US ISM data with the 10-year yield sliding to near 3.60% before consolidation around 3.65% and compared with 12-year highs at 4.00% last week.

The decline in US yields was a key element in underpinning global equity markets with strong gains on Wall Street and a rebound in Asian markets, although activity was dampened by holidays in Asia.

Chancellor Kwarteng’s conference speech and little immediate impact, but there were subsequent reports that the fiscal statement will be brought forward from November 22nd from November 23rd to late October which helped underpin Sterling sentiment.

The Reserve Bank of Australia increased interest rates by 25 basis points to 2.60% and below expectations of 50 basis points to 2.85%.

Governor Lowe stated that the cash rate had already been increased substantially in a short period of time with the bank slowing rate hikes to assess trends, although he expects further increases.

The Euro-Zone PMI manufacturing index confirmed that the sector was in recession territory for September. Overall Euro developments were limited during the day. Lower US yield sapped dollar support with defensive demand also fading as equities rallied. EUR/USD edged above the 0.9800 level and strengthened further to 10-day highs around 0.9850 on Tuesday.

USD/JPY was resilient and settled around 144.75 as strong equities curbed potential yen support. The lower than expected Swiss inflation release undermined Swiss franc support EUR/CHF strengthened to 0.9755 with USD/CHF around 0.9915.

The UK government U-turn on the top rate of tax provided Sterling support. Stronger risk appetite was a key element in boosting the UK currency. GBP/USD jumped to above 1.1300 and traded at 10-day highs around 1.1350 on Tuesday.

Commodity currencies were boosted by the surge in risk appetite. USD/CAD retreated to sharply to near 1.3600 as stronger oil prices also provided support. AUD/USD strengthened to above 0.6500 on Monday. The RBA 25 basis-point rate hike undermined the Australian dollar with AUD/USD around 0.6475. Gains in global equities triggered an AUD/USD move back to 0.6500 as equities posted further net gains.

Economic Calendar