Substantial UK fiscal support expected.

The Euro-Zone Sentix business confidence index declined further to -31.8 for September from -25.2 previously which was weaker than the expected reading of -27.5 and the weakest reading since May 2020.

According to Sentix, the economic situation in the Eurozone clearly deteriorated again. It added that signs in Europe have been pointing to a considerable recession for some time and it added that there are now increasing signs of a corresponding development at the global level.

European gas prices retreated from intra-day highs which provided marginal relief, but there were still important concerns surrounding energy prices.

Gazprom stated that flows through the Nord-Stream pipeline would not resume until Siemens repaired faulty equipment.

Japanese Finance Minister Suzuki warned over recent forex moves, but the rhetoric had no impact in reversing negative yen sentiment with sharp losses as yield spreads dominated Japanese currency moves.

USD/JPY strengthened to fresh 24-year highs just above the 141.00 level.

Bank of England Monetary Policy Committee member Mann stated that a drift in medium-term inflation expectations was already apparent.

She added that it was better to act forcefully and fast to keep expectations in check rather than adopting a gradual approach.

Following the appointment of Truss as the new Prime Minster, there are increased expectations that there will be a very substantial fiscal package to address the energy crisis with stronger speculation of a package of over £100bn to freeze energy costs.

The Reserve Bank of Australia increased interest rates by a further 50 basis points to 2.35% which was in line with market expectations.

There was little change in forward guidance with the bank suggesting that rates were ow in neutral territory.

The Euro secured marginal relief as gas prices retreated from intra-day highs. There was some reluctance to sell the Euro ahead of Thursday’s ECB policy meeting. There were no significant dollar developments during the day with US markets closed. EUR/USD edged above 0.9900 to 0.9930 and secured a limited net advance to 0.9950 on Tuesday.

The yen was unable to gain significant support as US yields edged higher on Tuesday. Japanese Finance Minister Suzuki warned over excessive currency moves. USD/JPY strengthened further to 24-year highs just above 141.00 on yield spreads. China cut the reserve requirement ratios on foreign exchange to help ease pressure on the yuan.

The Swiss franc held a firm overall tone on long-term inflation differential expectations. USD/CHF traded just below 0.9800 on Tuesday with EUR/CHF at 0.9740.

Sterling gained marginal relief on short covering, hawkish BoE talk and expectations of a major fiscal support package. GBP/USD edged back above 1.1500 with a net gain to near 1.1570 on Tuesday.

Commodity currencies secured only marginal gains as the US dollar held firm. USD/CAD drifted just below 1.3150 on Monday before a further retreat to 1.3125 on Tuesday as oil prices moved higher. AUD/USD settled around 0.6800 with little immediate impact from the Reserve Bank policy decision.

Economic Calendar