Caution prevailed on Tuesday ahead of key central bank meetings over the next 10 days.
Caution prevailed on Tuesday ahead of key central bank meetings over the next 10 days. Overall risk appetite held firm as Wall Street equities posted net gains. There were, however, still reservations over the Chinese property sector as domestic equities dipped on Wednesday.
The dollar secured limited net gains ahead of next week’s Federal Reserve policy decision. EUR/USD was held close to 1.1600 as it failed to make headway given expectations of a dovish ECB stance. Sterling retreated from intra-day highs as GBP/USD again failed to break 1.3830 with GBP/EUR also rallying to 20-month highs.
Commodity currencies overall retreated as the US dollar secured a net advance. The Australian dollar strengthened after the higher than expected core inflation data, but retreated from initial highs.
The dollar was unable to make headway ahead of Tuesday’s New York open, especially given further net support for commodity currencies which eroded potential defensive US support. EUR/USD edged higher to around 1.1625 as commodity currencies posted net gains before stalling.
The US Case-Shiller house-price index increased 0.9% for August after a 1.5% increase the previous month with the annual increase slowing slightly to 19.7% from 20.0% and below market expectations of 20.0%.
Consumer confidence recovered to 113.8 for October from a revised 109.8 the previous month and above consensus forecasts of 108.3. There was a limited increase in the current conditions component and a larger recovery in the expectations index. Consumers were slightly more confident over labour-market trends and plans for major purchases also strengthened slightly. New home sales increased to an annual rate of 800,000 from a revised 702,000 previously and well above expectations.
The Richmond Fed manufacturing index strengthened to 12 for October from -3 in September with new orders growth also back in positive territory. Employment and wages continued to increase at a solid rate while skills shortages eased slightly and there was a slight easing of upward pressure on costs.
The Euro overall remained vulnerable during the day, especially with expectations that the ECB would push back against the increase in money-market rates with the policy decision and press conference due on Thursday. EUR/USD retreated back below the 1.1600 level before stabilising close to this level.
Narrow ranges prevailed on Wednesday with EUR/USD close to 1.1600 as German consumer confidence edged higher for October.
US Treasuries dipped in early US trading with higher yields helping to underpin the US dollar while firm risk appetite undermined potential demand for the yen. USD/JPY advanced to highs around 114.30 before retreating slightly as yields edged lower again, but it held around 114.20 as the US currency secured wider traction.
Markets continued to monitor US fiscal developments during the day, although the overall market impact was limited and the US currency drifted lower.
Chinese industrial profits accelerated to 16.3% in the year to October from 10.1% previously which helped underpin confidence, although there were still concerns over the underlying Evergrande situation and underlying vulnerability in the real-estate sector with Chinese markets moving lower on Wednesday.
The latest Bank of Japan policy decision will be announced on Thursday with the underlying market impact likely to be limited with the central bank expected to maintain a very accommodative policy stance. The yen was resilient on the crosses with USD/JPY trading just above 114.00 and EUR/JPY around 132.25.
The CBI retail sales index strengthened to 30 for October from 11 the previous month and above consensus forecasts of 14. Retailers were more optimistic over the outlook for November sales which offered some potential relief over near-term consumer spending trends.
Firm risk conditions helped underpin the Sterling into the New York open and there was also a GBP/USD break above 1.3800. The pair was again unable to break above 1.3830 and retreated back below 1.3800 at the European close as the dollar gained fresh support. There were also still reservations surrounding the UK recovery profile which limited the scope for aggressive buying given that a Bank of England rate hike has been priced in.
GBP/EUR, however, rallied to 20-month highs close to 1.1900 amid wider selling pressure on the single currency and expectations that there would be further underlying yield divergence in favour of the UK currency. Risk appetite failed to hold best levels which curbed UK currency support.
Chancellor Sunak will present his budget statement on Wednesday with markets assessing the overall stance. A more expansionary than expected stance would boost expectations that the Bank of England will raise interest rates.
|07:00||German GfK Consumer Confidence (NOV)||-0.5||0.4|
|09:00||CHF ZEW Expectations(OCT)||25.7|
|12:00||USD MBA Mortgage Applications||-6.30%|
|13:30||USD Durable Goods Orders Ex Transportation(SEP)||0.50%||0.30%|
|13:30||USD Durable Goods Orders (M/M)(SEP)||0.70%||1.80%|
|13:30||USD Goods Trade Balance(SEP)||-88.16B|
|15:00||CAD BoC Rate Decision||0.25%||0.25%|
|15:00||BOC Rate Statement|
|15:00||BoC Monetary Policy Report (Q/Q)|
|15:30||USD Crude Oil Inventories||1.914M||-0.431M|
|16:00||BoC Press Conference (Q/Q)|