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EUR / USD

 

German consumer confidence dipped further to a record low of -42.5 for September from a revised -36.8 previously and below consensus forecasts of -39. Hawkish ECB rhetoric continued with council member Kazimir stated that a 75 basis-point rate hike would be a good option for the October meeting.

Bank President Lagarde stated that the bank will continue to increase rates in the next several meetings, but hawkish rhetoric had only limited impact.

There were further concerns over energy supplies to the Euro-Zone, especially with strong speculation that damage to the Nord-Stream pipelines was caused by sabotage. There were also important concerns over seasonal pressures which will undermine activity in the area.

The Euro fluctuated around the 0.9550 area against the dollar at the New York open, but then rallied strongly into the European close. Lower yields triggered a sharp round of corrective dollar selling with the Euro also benefitting from a covering of short positions and there was a strong recovery to the 0.9700 level against the US currency and a peak at 0.9740. The Euro was unable to hold peak levels and traded below the 0.9700 level to 0.9665 on Thursday ahead of the latest German inflation data. Markets will remain on alert for further month-end position adjustment, especially in view of very sharp market moves over the past few weeks.

 

JPY

 

The August US trade deficit declined to $87.3bn from $90.1bn the previous month. The Bank of England move to intervene and buy long-dated UK bonds had a significant global impact with US Treasuries also rallying strongly with the 10-year yield sliding to near 3.80% from overnight highs at 12-year highs above 4.00%.

Lower yields had a significant impact in curbing dollar support with a retreat to below 144.50 against the yen.

Atlanta Fed President Bostic stated that his baseline assessment was for a further 75 basis-point rate hike at the November policy meeting with another 50 basis points in December which would take the Fed Funds rate to 4.50%. He added that supply-side improvements had not come as fast as expected.  

The dollar continued to drift lower as US yields continued to decline with lows just below 144.00, although the yen struggled to gain significant support.

On Thursday, China warned over speculation against the yuan, although the currency remained vulnerable with further reservations over the wider Asian outlook. US yields stabilised on Thursday and overall dollar selling eased as it traded just above 144.50 against the yen.

 

GBP

 

After the European open, the Bank of England announced that it would intervene to buy long-dated gilts in the market to combat disorderly conditions. It would conduct daily operations to buy gilts until October 14th as the market had become dysfunctional and was posing a threat to financial stability. The bank also announced that the scheduled gilt sales as part of the quantitative tightening programme would now be delayed until the end of October.

Gilt yields declined sharply after the announcement, although volatility remained very high. Sterling initially spiked higher before being subjected to renewed selling pressure amid underlying fears over the UK outlook and lower yields. Markets also scaled back their expectations of interest rates hitting 6% next year.

S&P Global Ratings stated that it thinks the UK economy is already in recession which will last at least four quarters and sentiment remained extremely fragile.

Subsequent reports indicated that the Bank of England was uneasy over the threat of margin calls in the bond market with the bank also concerned that some key investment funds would have collapsed without action to stabilise yields.

Bond markets managed to stabilise later in the day with a wider rebound in risk appetite helping to underpin Sterling. There was a sharp rebound to highs above 1.0900 against the dollar while the Euro traded below 0.8950. Underlying sentiment remained negative amid major unease over the overall economic outlook. Sterling retreated back below 1.0800 against the dollar on Thursday with government and Bank of England comments remaining under close scrutiny during the day.

 

CHF

 

The Swiss ZEW business expectations survey dipped to -69.2 for September from -56.3 the previous month. The Swiss franc posted net gains early on Wednesday as risk appetite dipped again and it was notably resilient later in the session despite a sharp snap-back in risk assets.

The Euro dipped to fresh 7-year lows below 0.9450 before a recovery to 0.9480 while the dollar posted sharp losses to lows near 0.9750. The franc continued to gain net support from confidence in the long-term fundamentals, especially given inflation differentials, although the dollar recovered to near 0.9800 on Thursday.

Technical Levels 

290922 Tech

Calendar 

290922 Cal

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