Sunak steadies the ship.

The German IFO index declined marginally to 84.3 for October from a revised 84.4 previously, but significantly above consensus forecasts of 83.3. There was a small decline in the current conditions component to 94.1 from 94.5, but the expectations component rallied slightly to 75.6 from 75.3 and both figures were above consensus forecasts.

The IFO stated that a winter recession is coming with the economy likely to contract 0.6% for the fourth quarter. It also reported that retail expectations had hit a new record low, but industry expectations had improved slightly while 50% of companies are expecting to increase prices in the coming three months.

US consumer confidence dipped to 102.5 for October from a revised 107.8 previously and well below consensus forecasts of 106.5. There was a sharp decline in the current assessment and smaller retreat for the expectations index.

Overall confidence in the labour market declined and there were renewed concerns over inflation trends.

US Treasuries rallied strongly after the New York open which was a key element in undermining dollar support with a dip below 148.00 against the yen.

The 10-year yield dipped below 4.10% after the US data releases and held just below this level on Wednesday.

The decline in US yields contributed to significant dollar selling during Tuesday with the currency index dipping to 2-week lows.

Sterling secured slight gains into the New York open before posting a strong advance amid hopes that Sunak’s government can restore financial stability.

Hunt remained as Chancellor which helped underpin market confidence with a strong focus on fiscal policy in the short term given speculation that the medium-term financial statement scheduled for October 31st will be delayed.

Australian consumer prices increased 1.8% for the third quarter and above consensus forecasts of 1.6% with the core rate also at 1.8% and above expectations of 1.5%.

The data triggered expectations of a more hawkish Reserve Bank policy decision next week.

The Bank of Canada will announce its latest interest rate decision on Wednesday with consensus forecasts for a further 75 basis-point increase to 4.00%.

The bank will also release its latest Monetary Policy Report which will be important for forward guidance.

Lower European gas prices continued to provide an element of Euro support during Tuesday. There was also a reluctance to sell ahead of Thursday’s ECB policy decision. The US Philly Fed non-manufacturing index dipped sharply to -14.9 for October from 2.5 previously with a dip in new orders, but there was stronger upward pressure on prices. Companies were notably less confidence over the outlook, maintaining expectations of weaker demand.

The Richmond Fed manufacturing index dipped to -10 for October from a reading of unchanged in September with a sharp decline in new orders with order backlogs also much weaker. The employment indicators were mixed while there was a fresh increase in inflation pressures on the month.

Lower US yields sapped dollar support across all majors. The dollar index dipped to 2-week lows during the day. EUR/USD strengthened to 20-day highs around 0.9975 before a retreat to near 0.9950 and traded around 0.9970 on Wednesday.

USD/JPY was undermined by lower bond yields. The pair dipped to lows near 147.50 and a recovery to 148.40 stalled quickly with a dip back below 148.00.

Hopes for greater political stability provided Sterling support. Stronger risk appetite also helped boost UK currency demand. GBP/USD surged to 1-month highs fractionally below 1.1500 before a correction to 1.1450.

A weaker dollar and stronger equities propelled commodity currencies sharply higher. USD/CAD dipped to lows just below 1.3600 before stabilising. The Australian dollar gained further support after the stronger than expected inflation data. AUD/USD strengthened to highs above 0.6400 and traded above 0.6420 on Wednesday.

Economic Calendar