Talking Points:

Dollar Advances Across the Board as Sentiment Breaks, CPI Steady
Euro Worst Performing Major Braces for Growth Update
British Pound Mixed as Tone of BoE Minutes Softens

Dollar Advances Across the Board as Sentiment Breaks, CPI Steady

A fever of risk appetite in the equities market broke this past session and September inflation statistics for the US printed a steady – if below target – pace. How did the Dollar respond? It climbed further. The Dow Jones FXCM Dollar Index (ticker = USDollar) rose a second consecutive day, but it was its breadth rather than pace that impressed. Looking across the ‘majors’, the Greenback rose against all of its most liquid pairings. Once again, the fundamental motivations were of questionable provenance. The first slip for the S&P 500 in five trading days – especially after the biggest single day rally in 12 months – was a high profile development for those trading the safe haven currency. However, the Dollar experienced limited connection to the initial sentiment swell; so it is fitting that it would be little motivated by the moderation. Through the equities rally, the appetite for risk never hit a cadence to buoy all markets (suggesting it wasn’t a definitive move), so its correction inherently fall short on the needed intensity of risk aversion to truly leverage the extreme version of safe haven the currency represents.

Comparatively, the changing winds of Fed rate forecasts have proven a more active fuel for the Dollar. That made this past session’s September CPI reading an important release. Considering the market has significantly downgraded its forecast for the timing of the first FOMC rate forecast and the subsequent pace, there was a skew for how much impact the data would likely have under different scenarios. The 1.7 percent pace of price growth in headline and core price measures steadied from a cooling trend – though it does so below the central bank’s medium-term target. Downplaying the argument that this has nevertheless revived rate hopes; medium-term Treasury yields, Eurodollar futures and Fed Fund futures were all little moved on the day. Looking for a catalyst on the relative growth or relative interest rate front for the Dollar requires heavy-impact data. Today’s Chicago Fed National Activity Index and factory PMI is limited compared to next week’s FOMC decision and 3Q GDP.

Euro Worst Performing Major Braces for Growth Update

Scheduled event risk was limited once against for the Euro this past session. A multi-year high in Irish housing inflation and a strong 30-year German bond auction don’t touch upon the factors that are most interesting/concerning to FX traders. What was interesting through this past session were reports of a third straight day of asset purchases by the ECB. Though they reportedly bought Spanish covered bonds, there wasn’t a particularly remarkable move in the sovereign yields or the country’s capital market benchmarks. We will reportedly learn how much was purchased through this week next Monday. Meanwhile, the region’s economic and financial health are under the microscope. The ECB cautioned against positioning on conjecture over possible bank failures in the stress test results due Sunday, but the markets know the stakes. On the economic front, today’s docket offers up the Eurozone October PMI figures – the best leading data to GDP.

British Pound Mixed as Tone of BoE Minutes Softens

There is still a very vocal minority in the Monetary Policy Committee of the BoE. According to the minutes of the central bank’s last meeting – released this past session – members Weale and McCafferty once again voted for a 25 bp hike to the benchmark rate. They were overruled 7-2. Yet, despite the persistence of the group’s hawks, the ‘majority’ seems to be growing increasingly wary of their optimism. Remarks of evidence showing a slowing pace of growth and weak wage pressures builds on last week’s five-year low CPI reading. That same majority would also voice concern that a rate hike could leave the country vulnerable to shocks. Gilts and swaps were little changed for the day, but impliedrates are pushing back the time frame for the first hike. It now stands closer to mid-2015.

Japanese Yen: Official Says a Currency Decline is Good if Gradual

Bank of Japan Governor Haruhiko Kuroda remarked the other day that the Japanese Yen was rising due to a bout of international risk aversion amid economic turmoil. This past session Vice Economy Minister Yasutoshi Nishimura stated that a gradual drop in the currency was “good for Japan”. The stream of commentary from policymakers (the central bank and government) has grown steady. Yet, will it be effective? Effective ‘jawboning’ relies on either a favor market (already moves your way) or thinly veiled threats to alter stimulus. They currently have neither.

New Zealand Dollar More Responsive to its CPI than Aussie

Where the Australian Dollar was virtually unmoved by its 3Q CPI reading, New Zealand produced a substantial decline after its own inflation report. The difference is that the Kiwi is already suffering a tumble for the loss of its high profile yield forecast just a few months ago, and a curb of future hikes carries weight here. The 1.0 percent annual CPI reading is only a 5 quarter low, but far from the 2-3 percent target.

Emerging Market Capital Markets and Currencies Drop

Though FX was little effected by the shift in sentiment this past session, the Emerging Markets felt the pressure. The MSCI EM ETF fell for the first time in four days (0.7 percent). Meanwhile, the currency crosses were broadly read versus the US Dollar. Russia’s Economy Minister Ulyukayev offered a growth update that suggested the country’s economy stalled in September. The Ruble dropped 1.1 percent to a record low.

Gold Recovery Falling Far Short in Silver Counterpart

From its test of a multi-year low earlier this month, gold has rallied as much as 6.1 percent. As tepid as the market’s speculative interest in the move has been in ETF and derivatives demand, the price was nevertheless advancing. For silver – gold’s cheaper and sometimes speculative equivalent – the confidence has been far slower to find footing. The Gold-Silver ratio hit its highest level since May 2009 today.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Comments

0:30

AUD

NAB Business Confidence (3Q)

Though easing, not reflecting fears of broader slowdown just yet

1:35

JPY

Markit/JMMA PMI Manufacturing (OCT P)

52.0

51.7

Steady climb has developed 9 mths

1:45

CNY

HSBC PMI Manufacturing (OCT P)

50.2

Impact sapped after GDP

6:45

EUR

French Business Confidence Indicator (OCT)

France is following in the steps of Italy as fears of a stalled economy will find measure in this data

6:45

EUR

French Business Confidence (OCT)