Rise in yields keeps the dollar going

Recap

FX markets were pretty directionless over the course of the day, with markets marginally favouring USD following the gains the currency made on Tuesday. The Bank of Canada elected to interest rates at 5%, with nominal movements on CAD. Treasury yields continued to rise as equites dropped in a very risk averse market.

Today

Market rates

Daily move - against G10 rates at 7:30am, 26.10.23
** Indicative rates - interbank rates at 7:30am, 26.10.23

Data points

Speeches

None today.

Our thoughts

Risk aversion seems to be the story today as well, with META providing a less than positive outlook. We expect little action from the ECB today at 1.15pm, meaning interest rates will remain at 4%. US GDP numbers will be the key today, with a very high expectation that economic growth more than doubled between Q2 and Q3, with markets expecting the number to come in at 4.5% today. A higher print and expect US treasury yields to climb, thus causing USD to gain, and GBP and EUR to lose further. A miss on the numbers and we would expect a counter.

Worth noting price action on USDJPY. Once again we are at the 150 mark, where we could see talk of intervention being conducted by Japanese authorities. If so, this would result in USD selling.

Chart of the day

Growth differentials in focus again today, and the question is whether the US economy grew by 4.5% in Q3 vs growth of 2.1% in Q2. The expectations are high and we have seen over that time period - USD has gained over 7%, so it seems much of this good news is priced in.  A miss on the numbers and we could well see a drop in treasury yields, ultimately resulting in a weaker USD.

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