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EUR / USD

 

The Euro rallied to highs just above 0.9700 against the dollar in early Europe on Monday as the dollar was subjected to a correction while volatility remained high.

The German IFO business confidence index dipped sharply to 84.3 for September from a revised 88.3 the previous month and well below consensus forecasts of 87.0. The current conditions component declined to 94.5 from 97.5 while the expectations component dipped to 75.2 from 80.5 with both figures well below market expectations. The IFO stated that the economy is facing recession with almost all sectors in the red and particular difficulties in energy-intensive industries.

The Italian general election result secured only limited market attention during Monday with attention focused elsewhere, but there were still important reservations over the impact of a right-wing victory. In particular, markets will be looking at relations between a new government and the EU.

ECB President Lagarde stated that inflation risks are primarily to the upside and that the weak Euro had added to the build-up of inflationary pressure while activity is set to slow substantially in the coming quarters. She added that the bank might have to take further measures if inflation is not at target. ECB council member Nagel stated that decisive ECB rate hikes are needed. After correcting slightly, the dollar found fresh support, especially when equities were subjected to renewed selling pressure.  

The Euro failed to sustain gains and dipped to lows around 0.9585 before a recovery to 0.9650 on Tuesday as a recovery in risk appetite curbed dollar demand.

 

JPY

 

Boston Fed President Collins stated that getting inflation down will require slower employment growth while it is important to see convincing signs that inflation is falling. She added that it would be harder to lower inflation if higher expectations become entrenched, but added that it’s quite likely that inflation has peaked or is near peaking.

Treasuries were subjected to fresh selling pressure during Monday with a further sharp increase in yields as the 10-year yield hit fresh 12-year highs near 3.90%.

Higher yields continued to provide important support for the dollar with the US currency strengthening to highs near 144.80 before a limited retreat to 144.60.

Cleveland Fed President Mester stated that further rate hikes will be needed and a restrictive policy will be needed for some time with the need for pre-emptive action. She did, however, add that the Fed does not set policy in a global vacuum which could lead to a slightly less aggressive stance.

The Bank of Japan again engaged in unscheduled bond buying to keep yields down which undermined the yen. Risk appetite managed to stabilise on Tuesday with some reports of Chinese equities buying ahead of the October 16th National Congress and the dollar settled just below 144.50.

 

GBP

 

Sterling managed to regain some further ground in early Europe with a recovery from heavily-oversold conditions after the crash seen in Asia. The UK currency posted further gains into the New York open with support from strong speculation that the Bank of England would issue a statement later in the day. There was also speculation that the bank would announce an emergency increase in interest rates. The UK currency rallied to highs above 1.0900 against the dollar before fading.

UK Chancellor Kwarteng stated that the government will set out its medium-term fiscal plans and forecasts on November 23rd. The Office for Budget Responsibility (OBR) will also release updated forecasts for growth and borrowing requirement on the same day.

Bank of England Governor Bailey stated that the bank was monitoring financial conditions very closely given the sharp re-pricing of assets. The bank also stated that it would make a full assessment at the November policy meeting and will not hesitate to increase interest rates as much as needed.

Resistance to any emergency rate hike triggered renewed Sterling selling, but the mood was slightly less frantic. Sterling managed to regain some ground on Tuesday with a very tentative recovery in risk appetite helping to curb fresh selling and it traded around 1.0800 against the dollar with the Euro just below 0.8950.

 

CHF

 

Swiss sight deposits declined to CHF747.1bn in the latest week from CHF754.5bn the previous week and the sharpest decline for over 11 years. The data indicated that the National Bank was happy to see a further net tightening of monetary policy to curb inflation.

The Swiss franc was unable to gain further ground on Monday with the Euro rallying to 0.9580 before a retreat to 0.9540 while the dollar posted gains to highs above 0.9950 before fading slightly. National Bank member Maechler stated that the bank will do everything to reduce inflation and make sure that inflation does not become entrenched. She did, however, add that the bank could intervene if the franc strengthened too far and the dollar settled just below 0.9900 against the franc.

 

Technical Levels 

270922 Tech

Calendar 

270922 Cal

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