UK inflation edges above 10.0%.

The German ZEW investor confidence index recovered slightly to -59.2 for October from -61.9 the previous month and stronger than consensus forecasts of -65.7, but the current conditions index dipped further to -72.2 from -60.5 in September which illustrated that there are still important stresses within the German economy.

The NAHB housing index declined to 38 for October from 46 the previous month with all components weaker on the month. This was below market expectations of 43 and the lowest reading since May 2020 while, excluding covid, it was the weakest reading for 10 years.

The data reinforced expectations of further weakness in the housing market over the next few months.

Treasuries posted losses on Tuesday with the 10-year yield trading above the 4.00% level which continued to provide dollar support.

Although yields posted net gains, there was a further net advance on Wall Street with support from the latest earnings data.

There was a further shift in Bank of England interest rate expectations with markets now expecting a peak in rates just above 5.0% compared with above 6.0% at the height of the bond-market selling.

The central bank denied that there would be a further delay in enacting the quantitative tightening programme and stated later that the first gilt sales under programme will take place on November 1st, the day after the government medium-term statement.

The headline UK CPI inflation rate increased to 10.1% for September from 9.9% and slightly above 10.0% with the underlying rate at 6.5% from 6.3%.

There was only a limited reaction to the German ZEW data. The Euro gained net support from the sharp slide in gas prices during the day. Stronger equities limited potential support for dollar buying on defensive grounds. EUR/USD held above 0.9800 with highs at 0.9870, but failed to hold above 0.9850.

The US 10-year yield was just above 4.00%, undermining yen support. USD/JPY edged higher during the day. Japanese verbal intervention had little impact with USD/JPY around 149.25 on Wednesday and close to 32-year highs.

The Swiss franc was held in tight ranges with EUR/CHF near 0.9800 and USD/CHF around 0.9950.

Sterling volatility eased slightly during the day, but underlying confidence in the economy remained extremely fragile. The currency retreated sharply from intra-day highs despite strong risk conditions. GBP/USD dipped sharply to lows near 1.1250 before a recovery. GBP/USD traded just below 1.300 after the UK inflation data.

Commodity currencies failed to hold gains despite stronger equities. AUD/USD traded just below 0.6300 before edging higher to just above this level on Wednesday as equities posted further gains. USD/CAD strengthened to highs above 1.3800 before a retreat to near 1.3750.

Economic Calendar

06:00Consumer Price Index (MoM)(Sep)0.4%0.5%
06:00Consumer Price Index (YoY)(Sep)10%9.9%
06:00Retail Price Index (MoM)(Sep)0.5%0.6%
06:00Retail Price Index (YoY)(Sep)12.3%12.3%
12:30BoC Consumer Price Index Core (YoY)(Sep)5.6%5.8%

*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.