North American Summary and Highlights 14 October
Overview - The USD picked up on a stronger than expected US CPI.
North American session
US CPI was stronger than expected, up overall 0.649% before rounding, with the core rate particularly disappointing at 0.335%. This saw bets on an October rate hike bounce to approximately even, and the USD bounced, extending its gains in the morning but correcting in the afternoon to near where the knee-jerk bounce on the CPI had taken it, as Fed bets on an October tightening fell back to around a third. The Fed’s Beige Book saw some increase in inflationary pressure.
USD/JPY rose from 158.5 to near 159 but later moved back below pre-data levels. EUR/USD fell to 1.1150 from 1.12, leaving EUR/JPY down around a big figure at 176.5. EUR/GBP picked up but EUR/CHF slipped. AUD/USD fell to .6970 from .7010 while USD/CAD gains peaked at 1.43 before falling back to 1.4250, only modestly above pre-data levels.
European session
A little bit of dollar trimming follow-through initially, with AUD/USD in particular extending its corrective bounce from strong support to regain the 0.70~ figure into the key US data. Fed William’s comments late yesterday (sees no hikes next year) did help the US yield / USD consolidation moves. US10s treading water today ahead of the CPI prints. European morning levelling out however into the key data, given wariness over upside data risks too.
Skepticism over tightening priced into next year also echoed by BoE Chief Economist Pill this morning ('Is it obvious that we will need to move, follow market pricing to four 25 basis-point hikes and so forth? So there, I would be a little bit more skeptical').
Sterling still on a generally firmer footing even so. FT suggests those familiar with matter see UK Budget funding any cost-of-living support / giveaways from tax/reductions rather than increased borrowing, although the fiscal rule headroom contingency will be eroded as an Iran buffer. IMF was broadly supported of the UK’s current course yesterday.
The budget debate and amendment process continue in France. ECB’s Lagarde backed off any hints of any near-term support saying ‘the primary and first solution lies at home’ on the fiscal front. FT interview with Le Pen not terribly helpful either – vows ‘trial of strength’ with EU, and still campaigning on basis of cutting French contributions, and ECB to finance investments from energy to defense. EUR/GBP continues to grind lows amid the shifting relative fiscal/political risk sentiment.