Forex today: stocks rise yet so does the yen, dollar anchored
- Dollar was mostly soft against the G10.
- GBP/USD better bid on hawkish BoE members.
Forex today was governed by the flattening yield curve as markets price out prospects of tighter Fed policy on the long end, anchoring the dollar despite a rise in near-term yields ***.
However, despite the recent wobble in sentiment looking forward, with positive sentiment through the Asian session carrying through to Europe and the US, US equities were encouraged by the flattening yield curve. The anchored dollar was mostly soft against the G10, with NOK leading gains. Also, other notable shifts in the FX space were with the Canadian and Mexican dollar also rallying after the head of Mexico’s business chamber said NAFTA deals on telecom, energy and e-commerce is nearing completion.
The euro was confined to a tight range between 1.1713 and 1.1751 and it seems that markets are less concerned about German politics for today where the Free Democrats (FDP) unexpectedly pulled out of more than four weeks of negotiations with German Chancellor Angela Merkel’s conservative bloc and the ecologist Greens, citing irreconcilable differences.
Another standout factor in the markets came with a bid in the yen that started overnight in Asia and continued in European and US trade, despite US stocks rallying to fresh highs. Meanwhile, sterling drifted higher on strong CBI numbers. Also, earlier in the FX day on Tuesday, the Bank of England MPC members testified before the Treasury Select Committee (TSC), commenting on the policy outlook. The hawkish members reiterated the views from the latest BoE statement and are still seeing a modest tightening strategy as appropriate while rising energy prices would push the inflation higher in the short-term - cable met a high of 1.3261 in NY. As for the antipodeans, there is not much to be said there with both the Kiwi and Aussie stick to very narrow ranges in s sideways drift. AUD around 0.7590 and Kiwi between 0.6816 and 0.6839.
Key notes in US
- Chicago Fed National Activity Index points to a pickup in economic growth in October
- Philly Fed: Regional nonmanufacturing activity continued to expand
- US: Existing-home sales increased in October to their strongest pace since early Summer