Bank of Japan intervenes to support the yen.
Just after Thursday’s European open, Japan had announced that there had been intervention in the market through the Bank of Japan to support the yen. This was the first open-market intervention since 2008.
The yen surged following the announcement with the dollar slumping from 24-year highs just below 146.00 to trade at lows below 140.50 before regaining ground.
The Bank of England increased interest rates by 50 basis points to 2.25% at the latest policy meeting, which was in line with expectations, although there had been considerable speculation that the bank could opt for a 75 basis-point hike. Three members of the committee did vote for the larger hike while new member Dhingra backed a 25 basis-point hike due to fears over the outlook.
The bank lowered its peak inflation forecast to 11% due to the energy guarantee scheme, but also noted that there would be a significant impact on demand and pointed to major uncertainty over the outlook, especially with the government set to announce a major fiscal stimulus on Friday. In this context, the bank will assess the situation fully at the November meeting.
The Swiss National Bank increased interest rates by 75 basis points at the latest policy meeting, in line with market expectations. This moved benchmark rates out of negative territory for the first time since 2014.
The central bank stated that it would intervene in currency markets if necessary and could buy or sell the franc while it stated that further hikes might be needed.
The Norges Bank increased interest rates by 50 basis points to 2.25%, in line with expectations, and indicated that rates were likely to be increased again in November.
The bank did, however, suggest that the pace of rates hikes could slow given the degree of tightening seen over the past 12 months.
US Treasuries came under further pressure on Thursday with the 10-year yield surging to above 3.70% and the highest level for over 12 years. Higher yields continued to support the dollar.
Chancellor Kwarteng confirmed that the National Insurance hike would be reversed from November. The fiscal statement will be released on Friday with expectations of a very substantial fiscal stimulus and reaction in the gilts market will be watched closely.
The PMI business confidence data will be watched closely on Friday with releases for the Euro-Zone, UK and US. The US services-sector data will be particularly important after the much weaker than expected figure last month.
Euro-Zone consumer confidence dipped to -28.8 for September from -25.0 the previous month and below consensus forecasts of -25.8. US initial jobless claims edged higher to 213,000 in the latest week from 208,000 the previous week, but slightly below market expectations of 218,000 while continuing claims declined to 1.38mn from 1.40mn. Higher yields were again important in underpinning the dollar.
EUR/USD surged to above 0.9900 after the BoJ yen intervention, but failed to hold the gains. EUR/USD dipped to 0.9825 as the dollar gained fresh support with little change on Friday.
USD/JPY recovered to above 142.00 as underlying yield trends undermined yen support.
A slightly less hawkish SNB statement triggered Swiss franc losses. EUR/CHF surged to above 0.9700 before a fresh retreat to near 0.9600. USD/CHF failed to hold 0.9850 and retreated to below 0.9800.
Underlying Sterling confidence remained vulnerable with fears over the UK deficits. UK consumer confidence also slumped to a fresh record low for September. GBP/USD failed to hold above 1.1300 and traded below 1.1250 on Friday.
Commodity currencies posted limited net gains, but quickly retreated from intra-day highs and dollar strength continued to erode support. AUD/USD settled around 0.6640 on Friday before a retreat to 0.6620 on Friday. USD/CAD edged back below 1.3500 to trade around 1.3485.
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