More gains for USD yesterday as yields on US treasuries continued to climb following a higher-than-expected reading on the JOLTS job openings numbers. As data continues to suggest that the US economy remains resilient, this is leading the market to believe the Fed will stick to their hawkish path and keep rates higher for longer. Fed Mester also commented in the afternoon that should the economy remain steady then this could warrant a rate hike in November. Even a sharp sell on USDJPY couldn’t be sustained as markets speculated that there could have been some currency intervention by the Bank of Japan, who later declined to comment.
GBP overall was fairly resilient in a risk averse market, but the EUR on the other hand continued to decline.
* Daily move - against G10 rates at 7:30am, 04.10.23
** Indicative rates - interbank rates at 7:30am, 04.10.23
Despite current market positioning on currencies looking overdone, IE the USD is overbought and GBP and EUR are oversold, markets are missing the catalyst to reverse the trend that has been in place in July. Today's PMI and US ADP payrolls will be another key gauge on growth rate differentials, and another strong set of numbers from the US and we're likely to see yields on US treasuries and USD continue to gain.
Whilst the Bank of Japan have yet to confirm/comment on the ‘supposed intervention’ on USDJPY, over the last two days, officials and central banks in Taiwan, Korea, Indonesia, and Thailand have all commented on the slide of their respective currencies versus the USD, with suggestions of stabilizing if needed. It was only 12 months ago, we saw similar talk in the financial markets (Source: FT) which coincidentally or not resulted on the USD index weakening from its 20-year highs. Perhaps this could stem the USD performance in the short term?
Volatility in the FX space shot higher in the afternoon after seeing USDJPY drop by 1.8% in just 2 minutes, amid speculation the BoJ intervened in the currency markets. Worth noting though that this is the 11th time this year that we have seen an intraday move from high to low of 1.8%. Last year, this volatility was seen 24 times.
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