Talking Points

Yen and US Dollar Rise, Aussie and Kiwi Drop on Risk Aversion Flare-Up
British Pound Finds Little New in October’s Bank of England Meeting Minutes
S&P 500 Futures Point Toward Risk-Off Mood as Wall Street Comes Online

The Australian Dollar briefly spiked higher following better-than-expected third-quarter CPI figures but the move was quickly reversed amid a breakout of widespread risk aversion across financial markets. The likewise sentiment-geared New Zealand Dollar also sank as Asian and European stock exchanges slumped.

Newswires chalked up the move to a spike in Chinese money-market rates, with investors unnerved by the growth implications of tightening funding conditions in the world’s second-largest economy. Profit-taking after the previous day’s strong risk-on push (triggered by soft US jobs data) likely contributed to the selloff. The Japanese Yen and US Dollar outperformed on the back of haven-seeking capital inflows.

Minutes from October’s Bank of England monetary policy meeting revealed no change in policymakers’ unanimous consensus to keep the benchmark lending rate and the stock of QE asset purchases unchanged at 0.5 percent and £375 billion, respectively. The central bank noted that slack in the labor market was ebbing slightly faster than expected but the members of the rate-setting MPC committee agreed that neither tightening policy nor expanding stimulus efforts is appropriate for now.

As we discussed previously, recent disappointments in economic news-flow relative to expectations has broadly supported the central bank’s cautious outlook unveiled along with its forward-guidance policy regime. The markets had been more optimistic, to the onus to adjust is on investors rather than the BOE. With that in mind, we will look for new GBPUSD selling opportunities after our short position was stopped out with a modest loss on a close above 1.6172.

The economic calendar is relatively quiet in the coming hours, hinting risk trends will remain in the driver’s seat through the rest of the trading day. S&P 500 futures are trading notably lower ahead of the opening bell on Wall Street, arguing for continued risk aversion. That points the way for continued USD and JPY strength against the spectrum of G10 currencies.

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