The risk appetite improved early Wednesday, extending the previous day’s cautious optimism, as Fed talks suggest nearness to the policy pivot. Also keeping traders hopeful are expectations of witnessing an extended ceasefire in Gaza, as well as policymakers’ push for more stimulus in China and Japan.
With this, the US Dollar Index (DXY) licks its wounds at a three-month low while the Asia-Pacific shares and the US stock futures edge higher. That said, Gold remains firmer at the highest level since May, after rising the most in six weeks, whereas Crude Oil also grinds higher as OPEC+ chatters suggest more output cuts.
Elsewhere, NZDUSD cheers the US Dollar weakness, as well as the RBNZ’s hawkish halt, whereas USDJPY drops on downbeat yields. Further, EURUSD and GBPUSD bulls take a breather at three-month highs but AUDUSD bucks the trend amid recently downbeat Aussie data.
Furthermore, BTCUSD and ETHUSD extend the previous day’s recovery as crypto traders see more demand ahead of the spot ETF approvals, especially when the US Dollar drops.
Following are the latest moves of the key assets:
While the previous day’s Fed talks weighed on the US Dollar and allowed the rest of the currencies to refresh multi-day peak, hawkish comments from the European Central Bank (ECB) and the Bank of England (BoE) policymakers fuelled the Euro and Pound Sterling respectively.
Federal Reserve (Fed) Governor Christopher Waller said that as long as inflation keeps declining toward the Fed’s target, there is no reason to continue forcing rates to remain higher for longer. Waller’s comments came closer to the latest Fed Minutes and amplified concerns about a sooner end to the rate hike trajectory, as well as flagging fears of rate cuts in early 2024.
It’s worth noting that Chicago Fed President Austan Goolsbee also cited good progress on inflation and flagged concerns about keeping rates too high for too long to back the calls for policy pivot while Governor Michelle Bowman showed favors for hiking if inflation progress stalls. Additionally, Federal Reserve Bank of New York President John C. Williams said, “(It is) encouraging to see a decline in inflation pressure.”
Talking about the US data, the CB Consumer Confidence for November came in as 102.0 but the October figures were revised down from 102.6 to 99.1. Further, the US S&P/Case-Shiller Home Price Index rose 3.9% YoY in September, slightly below the expected 4%.
On the other hand, ECB policymaker and Bundesbank Chief Joachim Nagel said, “Rate hikes are not necessarily over,” which in turn allowed the Euro to edge higher and exert additional downside pressure on the US Dollar.
Elsewhere, hawkish comments from the Bank of England (BoE) officials allowed the British Pound (GBP) to ignore fears of the UK’s economic recession. That said, Deputy Governor David Ramsden said that the rates are to stay restrictive for an extended period. On the same line, BoE policymaker Jonathan Haskel also said that job market tightness means higher rates for longer.
It should be noted that the Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr also joined the policy hawks outside the Fed, despite offering no change to the current monetary policy. During his official press conference after the monetary policy decision, RBNZ’s Orr said that he is not bound by policy meeting dates, and can act on shocks if needed.
On the contrary, Bank of Japan (BoJ) board member Seiji Adachi defends the easy-money policy by citing the lag to see a positive wage-inflation cycle. The policymaker also said, “Now is not the time to say the Bank's inflation target has been met.”
The market’s cautious mood ahead of the US Q3 GDP’s second readings could keep traders on their toes while comments from the Fed officials and BoE Governor Andrew Bailey will also be important to watch amid the latest central bank fever. Should the US data keep suggesting the need for a policy pivot, the US Dollar will have to revisit the yearly low and the same can propel the GBPUSD price. However, BoE’s Bailey needs to defend the hawks and push back the fears of the UK’s recession at the same time to keep the Cable firmer.
May the trading luck be with you!