There was a flurry of activity around the U.S. Federal Open Market Committee statement and Chair Powell’s press conference. The FOMC did not announce tapering, which was the consensus view. Still, during the press conference, Powell suggested that if things progress as anticipated, the conditions for "substantial further progress" would be met. That’s Fed-speak for "tapering starts in November."
Chinese government actions served to downgrade the threat of contagion from Evergrande’s financial woes. The People's Bank of China pumped liquidity in the market, and there are reports Chinese authorities may restructure the company.
Asia stock markets closed mixed. The Hang Seng and ASX 200 gained while the Nikkei dipped. European bourses are higher except the FTSE, which is flat. Wall Street futures point to a positive open. US 10-year Treasury yields are 1.337%, and gold is trading at $1,771.24.
Norway’s Norges Bank raised interest rates from 0.0% to 0.25%, the first major central bank to do so in the post-pandemic world. Further increases are expected. The Swiss National Bank deferred changing monetary policy but promised to intervene in FX “as needed.”
EUR/USD rallied from the post-FOMC low of $1.1684 to $1.1732. Disappointing German and Euro area Markit Purchasing Managers Index data capped gains. German Manufacturing PMI fell to 58.5 from 62.6, while Eurozone PMI dropped to 58.7 from 61.4. The reaction was muted as the dips were due to supply bottlenecks. EURUSD remains vulnerable to a drop to 1.1600 due to the hawkish Fed outlook compared to the dovish European Central Bank view.
GBP/USD rallied from $1.3614 to $1.3683 and is trading in New York just below the peak. Traders ignored weaker than expected U.K. PMI data ahead, preferring to await the outcome of today’s Bank of England meeting. The BoE is expected to leave rates unchanged, and the risk is for a hawkish outlook is tempered by the ongoing energy crisis. GBPUSD technicals are bearish below $1.3700.
USD/JPY rallied from 109.12 on Tuesday to 109.99 today due to safe-have yen flows being unwound, as Evergrande worries fade, and due to steady to firm U.S. 10-year Treasury yields.
AUD/USD and NZD/USD bounced from overnight lows due to improved risk sentiment and higher commodity prices. AUD/USD gains were hampered by record COVID-19 cases in Victoria state.
U.S. weekly jobless claims are expected at 320,000 compared to 332,000 last week.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
