Geo-political tensions spark high volatility.

There was high volatility surrounding the US data release on Tuesday and another round of sharp moves after the European close.

A missile landed in Poland close to the Ukraine border and killed two people. There was speculation that the missile had been fired by Russia which sparked an immediate slide in risk appetite amid fears that there would be a NATO response and conflict escalation.

There was a high degree of uncertainty, but intelligence reports suggested that it had not been fired from Russia and risk appetite recovered on Wednesday.

The dollar posted sharp losses against all major currencies in early US trading on Tuesday with EUR/USD jumping to 4-month highs, but the US currency recovered ground quickly in very choppy trading. Geo-political fears after the missile news were significant in providing fresh dollar support.

The German ZEW economic sentiment index recovered strongly to -38.7 for November from -59.7 the previous month and stronger than consensus forecasts of -52.0.

The current conditions index also recorded a more modest improvement to -64.5 from -72.2 and above expectations of -68.4. US producer prices increased 0.2% for October, below consensus forecasts of 0.4% with the year-on-year rate declining to 8.0% from 8.4%.

Core prices were unchanged on the month with the year-on-year increase slowing to 6.7% from 7.1% and below expectations of 7.2%. The data sparked fresh optimism that inflation pressures were peaking.

The New York Empire manufacturing index rebounded to 4.5 for November from -9.1 the previous month and well above expectations of -5.0.  Shipments also increased on the month, but there was a dip in new orders into contraction territory while unfilled orders also declined.

Employment increased on the month and there was a net strengthening of price pressures compared with the previous release.

Atlanta Fed President Bostic stated that the full impact of monetary policy won’t be felt for months and that the central bank must look to economic signals other than inflation as guideposts.

He added that there are glimmers of hope on goods inflation, but services-sector inflation needs to slow as well and he sees upward pressure on wages. He still considered that further rate hikes will be needed.

Swiss National Bank Chair Jordan again stated that monetary policy needed to be tightened further, reinforcing expectations that there would be a further rate hike in December.

The headline UK CPI inflation rate increased sharply to 11.1% from 10.1% and above expectations of 10.7% as higher energy prices had an important impact. The core rate was unchanged at 6.5% and marginally above expectations of 6.4%.

The data reinforced recession fears with a further squeeze on spending.

Overall currency-market volatility spiked higher during Tuesday with very choppy trading. Better than expected German data helped spark initial Euro buying. EUR/USD surged to 4-month highs around 1.0475 before a fresh slide on Ukraine fears. EUR/USD found support below 1.0300 and traded around 1.0370 on Wednesday.

US yields overall were little changed with Treasuries unable to hold gains. USD/JPY slumped to lows at 137.70 before a sharp recovery and traded just below 140.00 on Wednesday.

After a surge to 0.9840, EUR/CHF dipped sharply to 0.9760 amid geo-political tensions. Hawkish SNB rhetoric also again underpinned the Swiss franc. USD/CHF dipped to 0.9360 before a recovery to 0.9440.

Sterling was subjected to very choppy trading. GBP/USD spiked to highs above 1.2000 before a fresh slide on heavy selling. Inflation data failed to provide support and GBP/USD traded around 1.1850 on Wednesday.

Commodity currencies failed to hold intra-day highs, but still posted solid gains. AUD/USD hit highs near 0.6800 and traded around 0.6760 on Wednesday. USD/CAD advanced to 1.3330 before a net retreat to 1.3280.

Economic Calendar