Today's report will sound very much like yesterday’s, with USD continuing to gain in the FX space on the back of risk aversion, with equities continuing to fall and yields on US treasuries continuing to climb. The currency was also supported by the hawkish comments from Fed Kashkari and Bowman. GBP and EUR continued to suffer in this environment.
* Daily move - against G10 rates at 7:30am, 27.09.23
** Indicative rates - interbank rates at 7:30am, 27.09.23
The markets continue to favour USD gains ahead of the bulk of economic data coming out on Thursday and Friday. One thing to note in the FX space is also what's happening between German (Bunds) and Italian (BTP’s) government bonds. The spread between yields on BTP-Bunds at the moment is now at the widest since October last year, and at that point EURUSD was trading approximately 5% lower than current rates. We could see further widening on this spread should the markets be disappointed with Italy’s new budget projections, and thus could well see the EUR weaken particularly versus USD.
As mentioned above, spreads between 2-year yields on Italian and German government bonds have widened now to the highest since October 2022, threatening to pile on even more pressure on EURUSD.
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