EUR / USD
The Euro held a firm tone in early Europe on Tuesday and gradually gained ground during the day with global risk conditions having an important market impact.
ECB council member Villeroy stated that interest rates will be raised as much as necessary and that the bank should go to a neutral rate without hesitation by the end of the year. He did add that the bank might slow the pace of hikes in 2023. ECB Lagarde commented that at a minimum the bank has to stop stimulating demand.
The US JOLTS data recorded a decline in job openings to 10.05mn for August from a revised 11.17mn the previous month which was below expectations of 10.77mn and the sharpest monthly decline on record. The data triggered renewed speculation over a slowdown in the labour market, although the overall evidence is still tentative at this stage, especially as jobless claims have been running at low levels over the past few weeks. The ADP data on Wednesday and monthly employment report on Friday will be watched closely for further underlying evidence on the jobs market and will create further volatility.
The weaker job-openings data was significant in undermining the US dollar with significant losses as yields moved lower and the Euro also gained from short covering.
Equities posted strong gains which also curbed any potential defensive dollar demand and the Euro posted strong gains to highs just below parity.
The Euro was unable to make a serious challenge on party and corrected slightly to 0.9965 in early Europe on Wednesday as risk conditions dominated.
US factory orders were unchanged for August after a 1.0% decline the previous month and in line with market expectations with markets monitoring Fed policy closely.
San Francisco Fed President Daly stated that the central bank needed to increase interest rates further and then hold policies until they are truly done with getting inflation down. Fed Governor Jefferson stated that the central bank had acted boldly and is committed to taking further steps. He added that restoring price stability will likely entail a period of below-trend growth. He also added that there were some indications that supply bottlenecks had begun to resolve.
The rhetoric has some dovish elements which sparked further hopes that the Fed might be able to adopt a less aggressive stance. Although the 10-year yield edged back above 3.60%, the dollar dipped to lows just below 144.00 as wider selling pressure had a significant impact.
Treasury yields increased marginally on Wednesday while trading conditions remained subdued with Chinese markets remaining on holiday. The dollar dipped to lows just above 143.50 before a recovery to above 144.00 in early Europe as overall yield spreads undermined the yen.
Sterling posted strong gains in early Europe on Tuesday with support from a further rebound in global equities and stronger risk appetite.
There was further uncertainty over the timing of the UK medium-term fiscal statement. According to the Treasury Committee, the report would be brought forward but Chancellor Kwarteng stated that the plan would be delivered on November 23rd and in line his original timetable.
The uncertainty triggered further reservations over policy and pushed Sterling lower. Comments from Prime Minister Truss will be watched closely on Wednesday.
The Bank of England bought no bonds at the latest daily auction which rattled the bond market with yields moving higher, although the overall currency market impact was limited although conditions were much less frantic given the much more favourable global backdrop.
Sterling gained an element of support from comments by Foreign Secretary Cleverly that there good signs in talks with the EU over Northern Ireland and that a deal could be reached before the controversial protocol Bill becomes law.
Sterling gained notable support from a fresh surge in equities with a peak near 1.1490 against the dollar, but the Euro recovered strongly to highs at 0.8745 before consolidation just above 0.8700. Sterling was unable to challenge 1.1500 against the dollar and retreated to 1.1440 on Wednesday with the Euro around 0.8715.
The franc was again undermined by strong risk conditions during the day with a dip in defensive demand for the Swiss currency. The Euro strengthened to highs at 0.9800 before settling around 0.9775 while the dollar dipped sharply to 0.9800 amid wider losses.
There was still an element of franc protection on longer-term expectations of price stability with National Bank rhetoric watched closely and underlying franc sentiment remains strong. The Euro drifted around 0.9770 on Wednesday with the dollar just above the 0.9800 level.