UK unemployment at 48-year low.

The Euro-Zone Sentix investor confidence index dipped further to -38.3 for October from -31.8 previously which was weaker than consensus forecasts of -34.7 and the weakest reading since May 2020.

According to Sentix, in addition to the economic worries, there is now also an increasing probability of an escalation of the military conflict in Ukraine.

Fed Governor Brainard stated that monetary policy will be restrictive for a while and that cumulative tightening will take time to bring inflation down. She noted that the Fed should proceed deliberately to assess how the economy, employment and inflation are adjusting in order to inform the path of policy rates.

Brainard also stated that premature easing is a risk, but risks may become more two-sided at some point.

US Treasury markets were closed for a holiday on Monday, but there was sharp selling in Asia with the 10-year yield jumping to near 4.00% while the 30-year yield posted a 7-year high above 3.95%.

Higher US yields continued to sap support for equity markets.

Higher US yields and weaker equity markets were again key elements in providing further US currency gains with the dollar index at 12-day highs.

Swiss sight deposits declined sharply to CHF639.3bn in the latest week from CHF669.6bn the previous week which was the second largest decline in the last 11 years after the record drop last week.

The sharp decline reinforced expectations that the National Bank wanted to raise money-market rates by draining liquidity and was potentially engaged in intervention to strengthen the Swiss currency.

The UK unemployment rate declined to 3.5% in the three months to August from 3.6% and the lowest rate since 1974, but the inactivity rate declined sharply.

Headline average earnings increased 6.0% over the year from 5.5%.

At Tuesday’s European open, the Bank of England announced that it would expand the bond-buying programme to index-linked gilts in order to underpin financial stability.

Markets tended to focus on underlying vulnerability rather than support measures and Sterling lost ground.

After a barrage of Russian missile attacks on Ukraine cities during Monday, markets will be watching developments closely on Tuesday with further unease over the threat of further retaliatory measures by Russia.

US-Russia relations and the Chinese input will be monitored closely.

Ukraine fears sapped Euro support in early Europe on Monday. The dollar also gained further net defensive support as equities retreated. EUR/USD dipped to lows near 0.9680 but was resilient at lower levels and edged back above 0.9700.

A jump in US yields provided fresh dollar support on Tuesday with EUR/USD below 0.9680. USD/JPY strengthened to 145.85 before drifting with no lead from Treasuries on Monday.

Traders were reluctant to push USD/JPY higher on Tuesday given the possible intervention threat.  The Swiss franc strengthened after the sight deposits data but failed to hold intra-day highs. EUR/CHF moved back above 0.9700 with USD/CHF challenging parity and trading just above this level.

Sterling rallied as fiscal plans were brought forward but was unable to hold gains. Weaker risk conditions again sapped currency support and rebounds faded quickly. GBP/USD dipped to test 1.1000 on Tuesday despite the expanded BoE bond buying and stronger than expected jobs data.

The Australian dollar remained under pressure with AUD/USD below 0.6300 on Monday. AUD/USD dipped further to 30-month lows near 0.6250 on Tuesday.

The Canadian dollar edged lower with Canadian markets closed for a holiday. USD/CAD tested 29-month highs just above 1.3850 amid US dollar strength. Higher inflation data supported the Norwegian krone with EUR/NOK dipping to below 10.34 before a recovery to 10.39 as risk appetite dipped again.

Economic Calendar

07:00Average Earnings Index 3m/y5.9%5.5%
07:00Claimant Count Change4.2k1.1k
17:00FOMC Member Mester Speaks
19:35FOMC Member Mester Speaks

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.