Federal Reserve will announce its latest policy decision on Wednesday.
US housing starts increased to an annual rate of 1.58mn for August from a revised 1.4omn the previous month and above consensus forecasts of 1.45mn. In contrast, building permits dipped to 1.52mn from 1.69mn previously and well below market expectations of 1.61mn.
US Treasuries posted sharp losses after the New York open with the 10-year yield breaking decisively above the 3.50% and surging to highs around 3.59%. There was a slight retreat to 3.55% on Wednesday.
Overnight, the central bank moved aggressively to buy bonds and cap yields with the move seen as a key message that there would not be any policy changes by the central bank at Thursday’s policy meeting.
The Federal Reserve will announce its latest policy decision on Wednesday. There are strong expectations that the bank will sanction another 75 basis-point hike in rates. The statement, Chair Powell’s press conference and updated forecasts of interest rates from individual committee members will all be important with very choppy trading inevitable following the decision.
The Euro-Zone recorded a current account deficit of EUR20bn for July after a EUR4.0bn surplus the previous month and compared with expectations of a small surplus for the month. In the 12 months to July, the surplus declined to EUR63bn and 0.5% of GDP compared with a surplus of EUR370bn and 3.1% the previous year.
In a speech at the European open, Russian president Putin announced a partial mobilisation of military forces and reinforced the determination to liberate the Ukraine Donbas region.
The hawkish rhetoric increased fears over an escalation in the Ukraine conflict.
The Swedish Riksbank increased interest rates by 100 basis points at the latest policy meeting which was larger than the consensus forecasts of a 75 basis-point increase and the largest increase on record. The bank also expects further rate hikes, but the krona failed to benefit from the decision
Canadian consumer prices declined 0.3% for August with the year-on-year inflation rate dipping to 7.0% from 7.6% and below consensus forecasts of 7.3%.
The core rate retreated to 5.8% from 6.1% with central bank core measures also declining slightly on the month.
Confidence in the Euro-Zone outlook remained weak with further concerns over the outlook. A current account deficit reinforced expectations of structural Euro weakness. Higher US yields sapped Euro support. A dip in risk appetite was significant in triggering fresh dollar demand.
There was little interest in dollar selling ahead of an expected hawkish Fed rate hike on Wednesday. EUR/USD failed to hold above 1.0000 and retreated to 0.9960. EUR/USD dipped again to 0.9930 after Putin’s speech on the Ukraine.
USD/JPY posted net gains on the back of higher US yields but failed to hold intra-day highs on Tuesday. The yen weakened again following the Bank of Japan move to buy bonds and cap yields with USD/JPY around 144.00.
Weaker risk appetite and expectations of further National Bank tightening this week strengthened to Swiss franc. EUR/CHF dipped to 0.9600 with USD/CHF unable to hold gains and trading around 0.9650.
Sterling was undermined by a slide in equites and underlying fears over widening UK deficits. GBP/USD failed to hold 1.1400 and dipped to near 1.1350 before stabilising.
Commodity currencies were again hurt by dollar strength and weaker equities. AUD/USD dipped back below 0.6700 and traded at 2-year lows around 0.6675 on Wednesday. USD/CAD posted strong gains to 2-year around 1.3375 as lower inflation also sapped support.
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