UK PM Truss resigns.

The US Philly Fed manufacturing index edged higher to -8.7 for October from -9.9 previously but was weaker than consensus forecasts and four of the last five reading have been in contraction territory.

The new orders and unfilled orders components remained in deep contraction territory for the month while shipments were in positive territory. There were stronger employment indices for the month while the prices paid, and prices received components posted stronger gains on the month.

Companies were notably less optimistic on the month while inflation pressures are expected to moderate.

Although the US data was mixed, there was sharp selling in US Treasuries with the 10-year yield increasing to above 4.15% amid expectations that the Federal Reserve would have to be even more aggressive in tightening monetary policy.

The 10-year yield increased further to a fresh 14-year high above 4.25% in Asian trading on Friday.

The Japanese Finance Minister stated that currency speculators would be dealt with strictly, but the Bank of Japan again increased more aggressively in the bond market to cap yields.

The dollar overall maintained a strong tone, especially with higher US yields and the USD/JPY posted further gains to a fresh 32-yar high around 150.40.

Just after the New Yok open on Thursday Prime Minister Truss announced that she was resigning as Conservative Party leader as it was impossible to carry out her economic policies.

The aim to have a new leader installed within a week and potentially on Monday if there is only one candidate who secures the high nomination bar of 100 MPs.

Bank of England Deputy Governor Broadbent stated that there is clear justification for a tighter monetary policy. He did, however, express serious doubts over the extent of market pricing and it remains to be seen whether interest rates must rise as much as priced in. He also warned that market pricing would imply a pretty material hit to demand and GDP could decline 5%.

Following the comments, there was a further shift in market pricing with markets pricing in an 85% chance of a 75 basis-point rate hike compared with expectations of a 100 basis-point hike last week.

UK retail sales declined 1.4% for September compared with expectations of a 0.5% decline and after a 1.7% slide the previous month.

The latest consumer confidence data was slightly better than expected with a recovery from record lows, but the government borrowing data was worse than expected.

There were no major Euro-Zone developments on Thursday. The Euro-Zone current account remained in deficit for August. The dollar retreated when risk appetite recovered. High yields, however, continued to provide important underlying dollar support with a sharp reversal later in the day. EUR/USD rallied to near 0.9850 as European currencies rallied before fading back to below 0.9800.

USD/JPY dipped to near 149.50 but with solid buying on dips. Higher US yields triggered renewed USD/JPY gains to 150.40.

The Swiss franc lost ground amid higher global bond yields. EUR/CHF advanced to near 0.9850 before fading to 0.9825 while USD/CHF found support at 1.0000 and strengthened to 1.0060.

Sterling rallied as Prime Minister Truss announced her resignation but failed to hold gains. Weaker risk appetite undermined the UK currency later in the day. Poor retail sales data also undermined Sterling confidence. GBP/USD posted highs above 1.1300 before a dip back to below 1.1200 to trade around 1.1180 on Friday.

Commodity currencies posted net gains but retreated from intra-day highs. AUD/USD strengthened to highs above 0.6350 before a sharp retreat to 0.6260. USD/CAD dipped to lows near 1.3650 before rallying to 1.3795.

Economic Calendar

07:00UK Retail Sales m/m-0.5%-1.7%

*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.