USD: The dollar remains king this morning as any inkling of a bounce in the pound fell back to a September low after 10-year US yields rose to the highest point in seven years, with 30-year Treasury bond reaching its highest level since October 2014. Federal Reserve Chairman Jerome Powell said that he could see the Fed raising interest rates beyond that of the ‘neutral’ level. The 10-year rate is of significant interest given that it sets the rates for many everyday Americans looking for business and consumer loans, crucially home mortgages.
Coupled with strong ADP data, the markets moved heavily into the Greenback, with GBP/USD moving back below the 1.3000 level.
Today’s data comes from the Labor Department with its monthly update on employment.
EUR: A key story that has been developing is the issue of Italian budgetary woes that weighed heavily on the common currency. Despite concerns of a delayed budget meeting, the government did their best to quash these fears by confirming there would be no delays or departures, with Economy Minister Giovanni Tria announcing plans to cut the budget deficit earlier than previously stated, in 2020.
This suggests that Italy’s government is moving away from its initial 2.4% deficit per year from 2019 to 2021 after EU pressures. With a national debt of €2 trillion, a fight with Brussels could concern markets and investors. But with anti-establishment Five Star Movement and right-wing Northern League winning Italy’s recent election with a promise of pushing back on EU rules, eurosceptics in the country may see Tria’s concession as unsavoury.
CAD: Earlier in the week, the Canadian dollar made gains thanks to the revamped NAFTA trade pact, the USMCA. On Monday, it touched its strongest level in four months. This had followed a period of uncertainty about whether the deal would ever be agreed or whether Canada would be left out in the cold, and there was a sigh of relief in financial markets when the deal was done.
However, the positive news from the States meant the US dollar made gains across the board. The Canadian dollar had little in the way of retaliation and it pared some of the gains from this historic deal. It wasn’t all bad news; despite the decline the Canadian dollar performed better than all the other G10 currencies with the exception of sterling.
GBP:The pound danced its way to a 10-day high versus the euro off the back of PM Theresa May’s moves at the Conservative Party Conference. This is despite no real detail and much of the same rhetoric from the PM, but markets were looking for a simple, uneventful address after May’s previous two speeches saw the sterling stumble.
Ireland’s support for her Customs Plan also helped pop the pound back up to the top, with this intervention seen as a serious sign of support ahead of the crucial EU Summit on October 18th.
With a data light calendar today, political sentiment could well be the order of the day when it comes to market movers.
JPY:While the US was riding high on the results of 10-year bond yields, the fact that the Japanese 10 year yield rose 2 basis points in Japan put new pressure on the Bank of Japan (BOJ). The advance will test the Bank of Japan’s newly-adopted objective to allow the benchmark to fluctuate more before it steps in to intervene.
The BOJ is under increased pressure to scale back its current monetary policy as global counterparts, especially the Federal Reserve, turn more hawkish. If the authority does change their approach on yields, it could cause changes in the yen so the results yesterday were approached with some caution. Financial markets will be watching closely to find out how the BOJ will respond.