USD continued to weaken, continuing its 6-day trend as Treasury yields continued to decline following dovish comments from Fed Bostic and Daly that another rate hike may not be needed, given how high US Treasury yields have risen to lately. Equities also climbed on higher risk appetite, after a report from China suggested that the country is considering raising its budget deficit for 2023, as the government prepares to add more stimulus to meet its annual growth statement. With USD weakening, GBP and EUR both benefitted yesterday. To add more woes for the UK and for GBP, the IMF warned that the economy will go through low growth performance this year and the next, and they expect inflation to remain persistent. All in all, not a great outlook for the UK this year and next.
* Daily move - against G10 rates at 7:30am, 11.10.23
** Indicative rates - interbank rates at 7:30am, 11.10.23
Germany’s final inflation numbers for September came in in-line with previous estimates this morning, with little effect on the EUR. US producer price inflation will be the key data point today, and should we see a decline in these numbers we would expect USD to continue to weaken - especially heading into tomorrow’s headline consumer inflation numbers. Later this evening we have the minutes from the latest Fed meeting, and any further hints that, or nods to, high Treasury yields doing the job for the Fed will cause the USD to weaken as well. Of course, we will continue to monitor the situation in Israel, and today Secretary of State Antony Blinken will travel to the country in a show of “solidarity and support”.
US Treasury yields have declined for 6 consecutive weeks, as markets ease the expectations of any additional rate hikes by the Fed this year. On the longer end of the curve, markets are now pricing in approximately 80bps worth of rate cuts. As a result the US dollar has retreated off its 11-month highs. Today's PPI and tomorrow's CPI data points will be in focus to see if the recent easing of rate expectations are correct or not.
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