UK policy criticism continues.
The US consumer confidence strengthened to 108.0 for September from a revised 103.6 the previous month and above consensus forecasts of 104.5. There were significant monthly increases in the current situation and expectations components with support from a decline in gasoline prices while confidence in the labour market also improved slightly.
Chicago Fed President Evans stated that he expects the central bank to raise rates further and then hold the stance for quite a while. His own assessment is that rates will be 4.25-4.50% at year-end which is roughly in line with the Fed’s median assessment. He added that at some point it will be appropriate to slow the pace of rate hikes and then hold rates for a while to assess the impact on the economy.
St Louis Head Bullard stated that the US has a serious inflation problem and the credibility of the inflation targeting regime is at risk. He added that rates are likely to peak around 4.5% and stay at level for some time.
The Richmond Fed manufacturing index improved to zero for September from -8 the previous month amid a recovery in shipments, but new orders remained in contraction territory. Labour-market components were mixed with a stronger increase in wages while inflation pressures eased on the month.
US bond yields continued to move higher with the 10-year yield close to 4.00% and the highest level for over 12 years.
US dollar corrections remained short-lived and the currency secured another round of strong buying on Wednesday as a dip in equities also provided fresh defensive support for the US currency.
Bank of England chief economist Pill stated that the central bank must ensure orderly and functioning markets. He added that the MPC is not indifferent to the re-pricing of financial assets and that this re-pricing has a big impact on UK macro developments. Pill added that it was hard not to draw the conclusion that there will need to be a significant monetary policy response. Pill did, however, push back against the possibility of an emergency move with comments that it was better for banks to take a more considered approach.
The IMF criticised the UK budget and Moody’s warned over the credit implications as fiscal policy remained under strong attack.
Pill also stated that planned gilt sales should go ahead unless bond markets were disorderly. UK bonds registered further losses on the day with the 10-year yield surging to just above 4.50% and the highest level since January 2008.
US durable goods orders declined 0.2% for August after a 0.1% decline the previous month and slightly weaker than consensus forecasts while underlying orders increased 0.2% on the month. Higher yields continued to underpin the dollar.
Reservations over the Euro-Zone outlook continued to sap Euro support. EUR/USD dipped below the 0.9600 level on Tuesday with fresh 20-year lows around 0.9550 on Wednesday.
Higher US yields continued to undermine the yen. USD/JPY strengthened to near 145.00, but there was selling on approach, especially with weaker risk appetite and USD/JPY traded around 144.65 on Wednesday.
Fragile risk conditions continued to underpin the Swiss franc with net gains. EUR/CHF did find support below 0.9500 while USD/CHF settled around 0.9950.
Sterling attempted to stabilise, but confidence remained extremely fragile. A reversal in equity-market gains sapped support. The IMF criticised the government budget and Moody’s warned over credit implications. GBP/USD did find some support near 1.0650 with over-sold conditions still being unwound.
Commodity currencies were mixed for much of the day before sliding again. USD/CAD found support below 1.3650 and rebounded to 1.3780 AUD/USD dipped to 2-year lows below 0.6400 on