EUR / USD
The German IFO index declined marginally to 84.3 for October from a revised 84.4 previously, but significantly above consensus forecasts of 83.3. There was a small decline in the current conditions component to 94.1 from 94.5, but the expectations component rallied slightly to 75.6 from 75.3 and both figures were above forecasts.
The IFO remained cautious with comments that a winter recession is coming with the economy likely to contract 0.6% for the fourth quarter. It also reported that retail expectations had hit a new record low, but industry expectations had improved slightly while 50% of companies are expecting to increase prices in the next three months. The Euro held steady close to 0.9850 into the New York open with the dollar unable to gain significant traction.
The dollar then dipped sharply as US yields declined and risk appetite held firm with the Euro surging to above 0.9950.
US consumer confidence dipped to 102.5 for October from a revised 107.8 previously and well below consensus forecasts of 106.5. There was a sharp decline in the current assessment and smaller retreat for the expectations index. Confidence in the labour market declined and there were renewed concerns over inflation trends.
The dollar posted further net losses following the data with the Euro strengthening to 20-day highs around 0.9975 as the dollar index dipped to 2-week lows.
The dollar secured a slight recovery on Wednesday with the Euro trading just above 0.9950 before a net gain to 0.9970 with traders targeting parity.
Position adjustment will be important ahead of Thursday’s ECB decision while there are no scheduled Fed comments as the blackout period continues.
The US Philly Fed non-manufacturing index dipped sharply to -14.9 for October from 2.5 previously with a dip in orders. Employment trends remained firm for the month and there was stronger upward pressure on prices. Companies were notably less confidence over the outlook, maintaining expectations of weaker demand.
The Richmond Fed manufacturing index dipped to -10 for October from a reading of unchanged in September with a sharp decline in new orders with order backlogs also much weaker. The employment indicators were mixed while there was a fresh increase in inflation pressures on the month.
Despite inflation pressures, US Treasuries rallied strongly after the New York open which was a key element in undermining dollar support with a dip below 148.00 against the yen. The 10-year yield dipped below 4.10% after the US data releases which triggered further dollar losses to lows near 147.50.
There was no evidence on Bank of Japan intervention during the Asian session, although markets remained wary over covert dollar sales through funds. There was also speculation that Japanese institutions would sell Treasuries and the dollar traded just above 148.00 with the Euro around 147.60.
Overall Sterling volatilities eased slightly on Tuesday as immediate political turbulence eased. The CBI industrial orders index edged lower to -4 for October from -2 previously, but stronger than consensus forecasts of -12. Companies reported that output had declined further in the latest three months, but expect a recovery over the next three months. There were still important inflation pressures with price increases still substantially above the long-term average.
Bank of England chief economist Pill criticised the Truss government for a lack of co-operation with other institutions including the central bank.
Sterling secured slight gains into the New York open before posting a strong advance amid hopes that Sunak’s government can restore financial stability.
Sunak retained Hunt as Chancellor which helped underpin market confidence. Risk appetite also strengthened with a notable advance on Wall Street which also helped underpin Sterling confidence. With the dollar losing ground, there were strong Sterling gains to highs fractionally below the 1.1500 level before a limited correction.
The Euro dipped sharply to lows around 0.8665 before stabilising while Sterling volatilities eased as market confidence returned.
Markets will focus on fiscal policy with Sunak due to hold talks with Chancellor Hunt ahead of the planned fiscal statement next week, although this timetable could be changed. Sterling edged back towards 1.1450 on Wednesday as equities dipped with the Euro recovering to 0.8690.
The Swiss franc lost ground again on Tuesday with a firmer tone surrounding risk appetite curbing potential support or the currency. The Euro advanced to 3-month highs above 0.9920 before fading slightly with the dollar dipping to 0.9950. Markets will monitor National Bank rhetoric if the Euro challenges the parity area against the Swiss currency. The franc resisted selling on Wednesday with the dollar just below 0.9950.