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EUR / USD

 

The Euro was unable to make headway on Tuesday and gradually lost support amid a lack of confidence in the Euro-Zone outlook and underlying demand for the dollar.

US consumer confidence strengthened to 108.0 for September from a revised 103.6 previously and above consensus forecasts of 104.5. There were 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.

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. 

August new home sales increased to an annualised rate of 685,000 from a revised 532,000 previously and well above market expectations.

Higher yields boosted the dollar with the Euro dipping below the 0.9600 level. The US currency posted further strong gains on Wednesday as equities also came under renewed pressure with the Euro sliding to just below 0.9550 and fresh 19-year lows against the dollar. US Administration officials played down the potential for any co-ordinated effort to curb dollar strength with the US currency surging to another 20-year high as commodity currencies also remained under pressure.

 

JPY

 

Ahead of the US open, 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, 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 economic impact. He also considered that many risks to the Fed’s outlook appear to be on the downside.

US durable goods orders declined 0.2% for August after a 0.1% decline previously, slightly weaker than consensus forecasts while underlying orders increased 0.2%.

St Louis Fed President 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. Minneapolis head Kashkari did state that there was a risk of overdoing it, but added that the Fed needed to keep tightening policy until we see compelling evidence that inflation has peaked and is heading down.

Treasuries were unable to hold gains on Tuesday with steady losses during US trading as the 10-year yield increased to a fresh 12-year high just below the 4.00% level.

Higher yields again underpinned the dollar with an advance to highs just below 145.00 against the Japanese currency.

China’s offshore yuan hit a fresh record low on Wednesday, but the dollar was held below 145.00 as weaker equities provided an element of defensive yen support.

 

GBP

 

Sterling attempted to stabilise during Tuesday, but underlying confidence remained very fragile at best given fundamental fears over the outlook.

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.  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, reinforcing fears over higher mortgages.

Sterling failed to hold initial gains on Pill’s comments as higher bond yields sparked fresh fears over the outlook. Risk appetite also deteriorated again which sapped UK support. The UK currency dipped to lows near 1.0650 against the strong dollar before a recovery to above 1.0700 with the Euro hitting resistance close to 0.9000 and retreating to below 0.8950. Overnight, the IMF criticised the government’s fiscal plans and Moody’s also warned over the credit implication. The BRC shop-price index increased 5.7% in the year to September and a fresh record high. Sterling confidence remained very weak, but again found support close to 1.0650 against the dollar.

 

CHF

 

The Swiss franc posted net gains on Tuesday with fragile risk conditions continuing to provide a supportive backdrop. Expectations of long-term inflation differentials in favour of the currency also maintained underlying demand for the currency. The Euro did find support just below the 0.9500 level while the dollar peaked near 0.9950 before a retreat to 0.9915. The Euro held close to 0.9500 on Wednesday with the dollar close to 0.9950 as equities posted another round of losses.

 

Technical Levels 

280922 Tech

Calendar 

280922 Cal

Contents

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