UK fiscal statement confusion.
The US JOLTS data recorded a decline in job openings to 10.05mn for August from a revised 11.17mn the previous month which was below expectations of 10.77mn and the sharpest monthly decline on record.
The data triggered renewed speculation over a slowdown in the labour market, although the overall evidence is still tentative at this stage, especially as jobless claims have been running at low levels.
San Francisco Fed President Daly stated that the central bank needed to increase interest rates further and then hold policies until they are truly done with getting inflation down.
Fed Governor Jefferson stated that the central bank had acted boldly and is committed to taking further steps. He added that restoring price stability will likely entail a period of below-trend growth. He also added that there were some indications that supply bottlenecks had begun to resolve.
Although Fed rhetoric was relatively hawkish, markets were more convinced that the central bank would shift to a less aggressive stance, especially if there is further evidence of a cooling in the labour market.
The net decline in US yields and hopes for a less aggressive Fed stance were again key elements in underpinning global risk appetite with another round of strong gains on Wall Street.
There was further uncertainty over the timing of the UK medium-term fiscal statement. According to the Treasury Committee, the report would be brought forward, but Chancellor Kwarteng stated that the plan would be delivered on November 23rd and in line his original timetable.
The uncertainty triggered further reservations over fiscal policy.
The Reserve Bank of New Zealand increased interest rates by 50 basis points to a 7-year high of 3.50% which was in line with consensus forecasts.
The overall rhetoric was broadly hawkish with expectations of further rate hikes.
Hawkish ECB rhetoric helped underpin the Euro, although global conditions dominated. There was evidence of short covering on position adjustment as the Euro gathered pace. Lower yields were a key element in undermining the dollar. Stronger risk appetite also curbed defensive support for the US currency.
EUR/USD posted strong gains to 2-week highs just below parity. There was a limited correction on Wednesday with EUR/USD around 0.9965.
Lower yields helped cushion the yen during the day. USD/JPY dipped below 144.00 with lows near 143.50 before a recovery back above 144.00 on Wednesday.
Strong equities limited potential Swiss franc demand. EUR/CHF strengthened to highs at 0.9800 before settling around 0.9770. USD/CHF dipped sharply to 0.9800 before stabilising.
Fiscal policy curbed Sterling support to some extent, but global developments had a greater weight. Stronger risk appetite triggered notable support for the UK currency. GBP/USD posted strong gains to 20-day highs near 1.1490 before a correction to 1.1435.
Commodity currencies were mixed on shifts in yield expectations. The Canadian dollar was boosted by strong equities and net gains in oil prices. USD/CAD dipped to lows near 1.3500 as oil prices posted further gains. AUD/USD was unable to hold above 0.6500 after the smaller than expected rate hike and traded just below this level on Wednesday. The New Zealand dollar spiked after the hawkish RBNZ rate hike but failed to hold best levels with NZD/USD around 0.5750.
|02:00||NZD Official Cash Rate||3.50%||3.00%|
|02:00||RBNZ Rate Statement|
|13:15||USD ADP Non-Farm Employment Change||200k||132k|
|15:00||USD ISM Services PMI||56.0||56.9|