Remarkable UK budget U-turn continues.

The New York Empire manufacturing survey dipped to -9.1 for October from -1.5 the previous month and below consensus forecasts of -4.0. The new orders index was unchanged with slight growth, but shipments edged lower on the month.

There was a further small increase in employment while inflation data was mixed with a faster rate of increase in costs, but prices received at a slightly slower rate.

Businesses overall were less confident over the outlook on the month with inflation pressures expected to remain firm.

Treasuries briefly gained ground on Monday and US yields retreated, but there was a reversal later in the day.

The 10-year yield tested the 4.00% level, but failed to close above this level and traded just below this level on Tuesday.

New UK Chancellor Hunt stated on Monday that nearly all of the tax measures in the September fiscal statement would be scrapped with only the reversal to the National Insurance increase and cut in stamp duty remaining as legislation is already underway.

Hunt also stated that there would be a review to the energy cost support package in April with an aim in cutting the cost to the Treasury.

The UK reversal in UK tax policy pulled UK bond yields lower with the 10-year yield trading below the 4.00% level. There was relief in UK markets which also helped global sentiment to some extent.

The further UK reversal in UK tax policy also helped underpin global risk appetite during Monday and Wall Street equities posted significant gains with a positive reception to earnings data while the Nasdaq index posted a gain of over 3% on the day.

The latest Bank of Canada business expectations survey reported a softening in business conditions and most companies now expect recession.

Overall inflation expectations remained elevated which will be of concern for the Bank of Canada despite expectations of weaker growth conditions.

There were no major Euro-Zone developments during Monday. Lower gas prices provided a significant element of Euro support. Bundesbank head Nagel stated that monetary support should be withdrawn quickly.

The dollar dipped amid strengthening risk appetite. Dollar losses were also driven initially by a decline in yields, but the US currency failed to recover when yields increased. EUR/USD strengthened to highs near 0.9850 on Monday and edged higher again on Tuesday, but hit selling above 0.9850.

The yen was unable to gain significant support amid underlying yield spreads. USD/JPY settled just below 149.00 after 32-year highs just above this level.

The Swiss franc was driven mainly by wider cross-related moves. EUR/CHF edged higher to near 0.9800 while USD/CHF dipped to lows below 0.9950.

Sterling posted sharp gains as the further back-tracking of tax cuts boosted market confidence and UK yields declined. Strong risk appetite also boosted the UK currency. GBP/USD surged to highs around 1.1440 before a correction. GBP/EUR hit 6-week highs at 1.1650 before a notable recovery to 1.1540.

Commodity currencies were boosted by stronger equities and firm risk conditions. AUD/USD broke above 0.6300 before fading. RBA minutes stated that further rate hikes are ahead with rates not particularly high. AUD/USD settled around 0.6320 on Tuesday.

There was a mixed reaction to the Canadian business outlook. USD/CAD dipped to 1.3700 before a recovery with further losses to 1.3670 on Tuesday amid a wider US retreat.

Economic Calendar

01:30Monetary Policy Meeting Minutes-0.1%-0.3%

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