Yen continues to slump, dollar at 20-year high.
The final US PMI services index for August was revised slightly lower to 43.7 from the flash reading of 44.3 and following a 47.3 reading for July.
The ISM non-manufacturing index strengthened slightly to 56.9 for August from 56.7 the previous month and above consensus forecasts of 55.1. Business activity and new orders increased at a slightly faster rate while there was a marginal increase in employment for the month. There was a slight easing of supply-side difficulties while there was only a slight easing of inflation pressures for the month.
Treasuries remained on the defensive ahead of the New York open with yields moving higher. The stronger than expected US ISM data had a greater impact in markets and triggered another round of losses in Treasuries with the 10-year yield increasing to 10-week highs around 3.35%.
The increase in yields underpinned the dollar and triggered a further round of yen selling as yield spreads undermined the Japanese currency.
Further verbal intervention had little impact in curbing yen selling and the dollar surged to fresh 24-year highs above 144.00 before correcting slightly. The dollar index posted a fresh 20-year high.
Following the appointment of Truss as the new Prime Minster, there remain clear indications that there will be a very substantial fiscal package of at least £100bn to ease the energy crisis.
UK gilts dipped sharply with the 10-year yield at 11-year highs around 3.15%.
The Bank of Canada is expected to increase interest rates again at Wednesday’s policy meeting with consensus forecasts of a further 75 basis-point increase to 3.25%.
As well as the rate decision, the forward guidance from the bank will inevitably be important for the Canadian currency moves.
German factory orders declined 1.1% for July. There were further concerns over the underlying Euro-Zone outlook given fears over gas prices. Markets expect further substantial fiscal support plans from EU countries. German bond yields continued to increase during the day.
The firm US ISM data and higher yields boosted the dollar. EUR/USD slipped sharply to 19-year lows below 0.9870 and struggled to hold above the 0.9900 level to trade just below this level on Wednesday. Higher US and global yields were pivotal in undermining the yen with heavy selling continuing. USD/JPY surged to fresh 24-year highs above 143.00.
Higher US and German yields undermined Swiss franc support, although with some resilience and USD/CHF settled around 0.9850. EUR/CHF edged higher to 0.9750 with only limited support from higher yields.
Sterling gained net support from higher yields and an expected freeze on energy prices, but failed to hold intra-day highs. GBP/USD failed to hold a brief move above 1.1600 and dipped back below 1.1500 on Wednesday.
Australian GDP increased 0.9% for Q2, in line with expectations. The Australian dollar dipped sharply amid US currency gains and weaker equities with AUD/USD hitting 7-week lows at 0.6700.
The Canadian dollar failed to hold intra-day gains with a dip in oil prices sapping support. USD/CAD strengthening to 1.3185 on Wednesday.
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