Fed hints over a pivot.

The latest reports from the Wall Street journal suggested that the Federal Reserve was aiming for a 75 basis-point rate hike at the November policy meeting. According to reports, there are also divisions within the central bank whether to signal a smaller rate hike at the December policy meeting. Some are concerned over the potential impact on the economy while others are concerned that inflation isn’t falling.

San Francisco Fed President Daly stated that she wants to avoid an unforced tightening by over-tightening and that the central bank is now at the stage where it needs to be thoughtful. She added that the Fed also needs to take account of synchronised global central bank tightening.

The overall commentary increased market hopes for a switch to a less aggressive Fed stance.

The US 10-year yield peaked at 4.33% on Friday before a sharp correction to 4.22% after the Fed rhetoric.

There was a further retreat to 4.15% on Monday amid hopes for a Fed pivot.

Just after the European close on Friday the Bank of Japan intervened to support the Japanese yen and acted again in Asia on Monday which helped trigger a bid for Treasuries.

The dollar posted sharp losses after the Bank of Japan intervention with USD/JPY sliding to lows below 147.00 from 32-highs near 152.00.

The bank intervened again in Asia on Monday with USD/JPY diving to below 146.00 before a strong recovery to 148.85.

The latest Chinese data was stronger than expected with third-quarter GDP growth at 3.9% from 0.4% previously and above consensus forecasts of 3.3%. Production data was also stronger than expected, but retail sales were subdued.

The trade data also sparked fresh reservations over the demand outlook.

Just after Monday’s Asian open, former Prime Minister Johnson announced that he would not be standing to be the next Prime Minster despite claiming that he has enough backers to run.

This puts former Chancellor Sunak in an extremely strong position and he could well be confirmed as the next Prime Minister later on Monday.

Sterling rallied on the Johnson announcement on hopes for an early resolution and easing of uncertainty. A rebound in risk appetite also helped underpin the UK currency.

Euro-Zone October consumer confidence recovered slightly to -27.6 from -28.8 previously. The Euro moves were dominated by shifts in risk appetite. EUR/USD dipped to lows just above 0.9700. There was a sharp reversal after the New Yok open as equities rallied strongly.

A decline in US bond yields also sapped dollar support. EUR/USD surged to highs above 0.9850 amid a dollar slide. EUR/USD posted highs at 0.9900 in Asia on Monday before a retreat to near 0.9850.

USD/JPY surged to highs near 152.0 before a slump to lows below 146.00 after two rounds of Bank of Japan intervention. USD/JPY rallied strongly to near 149.00 on Monday despite lower US bond yields.

The Swiss franc rallied from intra-day lows on Friday. EUR/CHF settled around 0.9825 while USD/CHF dipped sharply to near 0.9970.

Overall, Sterling confidence remained fragile, especially with political uncertainty and GBP/USD dipped sharply to weekly lows near 1.1060. Sterling did, however, rally strongly as risk appetite posted a robust recovery. GBP/USD surged to highs above 1.1400 after Johnson pulled out of the Prime Minister race before a retreat before settling above 1.1350.

Commodity currencies posted strong gains as equities surged and the dollar posted sharp losses. AUD/USD surged to highs near 0.6400 before a retreat to 0.6340 with doubts over the domestic economy. USD/CAD dipped to lows near 1.3600 before a recovery to 1.3690.

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