Forex today was chasing the higher rates and a Fed hike scenario for December.
Despite the increasing bullish theme around the US economy and its outlook that is driving rates higher, Wall Street continues to rally with US stocks making fresh highs, with the S&P500 +0.2%.
2yr yields rose from 2.55% to 2.57% while the US 10yr treasury yield rose from 2.30% to 2.35%. Fed fund futures yields are pricing the chance of a December rate hike at 92%. The DXY was unchanged on the day.
Data-wise, the Fed’s Beige Book was positive on the US economy and came across hawkish. Fed's Dudley said the biggest uncertainty is Washington's policy-making ahead of tomorrow's key vote on the budget in the Senate.
EUR/USD was higher despite the US / STIR curve widening in the steeper Fed path. The correlation is diminishing yield EUR initially fell to 1.1730 before rebounding to 1.1795.
GBP was heavy but managed a score to the 1.32 level. However, the pound was initially lower on the 1.31 handle despite the positive UK wages that were strong enough to persuade markets that the BoE is a little more likely to raise rates in the near future, with Nov still favoured. EUR/GBP was up around 50 pips from Asian lows to 0.8946.
USD/JPY rose from 112.20 to 113.05, with the safe-haven yen the worst performer out there. This was a new closing high, but the pair still needs to clear 113.00 and close above there for a convincing correction.
As for the antipodeans, the Aussie continued to range between 0.7820 and 0.7860 while high-beta FX remained on the defence while the Kiwi, as the second-worst performer, fell from 0.7160 to 0.7120 after news the NZ government will be announced on Thursday.
Key risks ahead
Analysts at Westpac note dthe key events risks for Asia as follow . . .
"NZ: Monarch-maker NZ First said yesterday that it will be in a position to announce this afternoon which major party it will form a government with.
Australia: Sep employment is expected to rise 15k, holding the unemployment rate at 5.6%. Westpac’s forecasts are +25k, 5.6%, with leading indicators pointing to ongoing robust demand for labour. The Q3 NAB business survey provides a more detailed report than the monthly survey which remained above average at +14 over the quarter. RBA Assistant Governor Financial System Bullock speaks at the Shareholders Association, Sydney 12:10 PM.
China: Q3 GDP is expected to show annual growth of 6.8%, which remains above authorities’ 2017 target of “around 6.5%”, having surprised to the upside in the preceding three quarters."
Key notes from US session
- WH spokeswoman: Announcement on Fed chair due in coming days
- US Dollar edges lower below 93.30 on Fed's Beige Book
- Fed's Beige Book: Price pressures remained modest
- Markets have almost fully priced in a third hike for 2017 in December - BBH
- WTI drops below $52.00 post-EIA
- EIA: US commercial crude oil inventories decreased by 5.7 mln barrels
- Atlanta Fed: GDPNow model forecast for real GDP growth in Q3 steady at 2.7%
- The mystery behind low inflation - Natixis
- Wall Street surges to record highs led by tech and financials
- OPEC leaning toward extension of oil supply cut for 9 more months - Reuters
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