The Greenback caught a bid and was the top-performing currency of the morning London session.
The Swissy, meanwhile, found itself at the very bottom of the forex heap, probably because of the modest risk-taking in Europe, although SNB meddling can’t be ruled out.
As for other currencies of note, the euro and the pound are both worth highlighting since the former was hit by late sellers while the latter extended its slide from the earlier session but was later pushed higher by buyers.
- French consumer confidence: 94 vs. 97 expected, 96 previous
- Credit Suisse economic expectations: -30.8 vs. -14.3 previous
- U.K. gross mortgage approvals: 39.4K vs. 39.7K expected, 39.6K previous
- CBI’s U.K. realized sales: 23 vs. 18 expected, 29 previous
- FOMC statement and presser later
- RBNZ statement also later
Moscovici speaks about Italy’s budget
European Economic and Financial Affairs Commissioner Pierre Moscovici was interviewed by La Stampa earlier during the session.
And Moscovici stressed that Italy’s 2019 budget deficit “must stay well below 2%” of GDP.
This is below the E.U.’s 3.0% limit, but is more than double that of the previous Italian government’s 0.8% target. The E.U. is therefore compromising with the new Italian government by allowing the government to have a higher budget deficit.
Tria drops hints about the Italian budget
Italy will release its Economic and Financial Document tomorrow, which will finally reveal the government’s economic and fiscal targets for next year.
And earlier today, Italian Economy Minister Giovanni Tria gave us some hints on what the document will include.
In a speech before a retail association, Tria said that the budget will include the “citizens’ income” that the 5-Star Movement has been demanding.
Tria also tried to calm investors by saying that:
“We are working at a mix of policies that show everyone they should have confidence in Italy, not only in our public finances but in our economic growth.”
And with regard to the budget deficit target, Tria didn’t really reveal any details but he did imply that the budget will comply with the E.U.’s fiscal rules (and may even be below 2.0% of GDP) when he said that tomorrow’s economic and fiscal targets will “send a message to markets on the sustainability of our debt.”
ECB Chief Economist Peter Praet already showed his dovish feathers yesterday. And, well, he did so again earlier today when he shot down calls for rate hikes sooner:
“Our base scenario, where inflation is going to converge towards 2 percent, is conditional on very easy financial conditions in general.”
He also said that “Risks [to the Euro Zone economy] are mounting,” but he did try to sound somewhat optimistic by also saying that “But so far we haven’t seen any impact on real data… I’m not excessively worried.”
E.U. Chief Brexit negotiator Michel Barnier announced this somewhat positive Brexit-related news earlier.
Good meeting w/ @EESC_President. We are working for an orderly #Brexit and a new partnership that respects the UK's sovereignty, as well as the founding principles of the EU, such as the integrity of the single market. pic.twitter.com/VmwQg6kVNu
— Michel Barnier (@MichelBarnier) September 26, 2018
Cautious risk-taking in Europe
The major European equity indices tossed and turned but most closed the session on a higher note, so risk appetite appears to be the more prevalent sentiment in Europe.
And market analysts say that the modest risk-taking in Europe was just due to risk sentiment spillover from the earlier Asian session, while jitters ahead of the FOMC statement helped to cap gains.
- The pan-European FTSEurofirst 300 was up by 0.08% to 1,506.78
- Germany’s DAX was down by 0.07% to 12,364.72
- The blue-chip Euro Stoxx 50 was up by 0.32% to 3,429.95
Major Market Mover(s):
The Greenback reigned supreme even as the FOMC statement loomed over the horizon.
There were no catalysts for the Greenback’s rise, but some market analysts were suggesting that we may just be seeing some preemptive positioning ahead of the FOMC statement.
USD/JPY was up by 13 pips (+0.12%) to 112.99, AUD/USD was down by 15 pips (-0.21%) to 0.7245, NZD/USD was down by 18 pips (-0.27%) to 0.6644
The Swissy was the biggest loser of the session and also happens to be the biggest loser of the day (so far).
The risk-friendly vibes in Europe may have been the reason for the safe-haven Swissy’s weakness, but I’ve also got a sneaking suspicion that the SNB may have been meddling in the forex market again since the Swissy’s weakness was rather notable.
USD/CHF was up by 38 pips (+0.40%) to 0.9689, EUR/CHF was up by 21 pips (+0.19%) to 1.1372, NZD/CHF was up by 11 pips (+0.17%) to 0.6439
The euro was initially range-bound and headed for a mixed finish. However, it closed out the session in second-to-last place, thanks to an influx of late sellers.
As to what enticed sellers to attack, that’s not yet very clear, but most EUR pairs began to find sellers after Praet spoke.
However, selling pressure began to really ramp up after Tria’s speech (even though Tria said some positive things), so it’s possible that some EUR bulls were just taking some profits off the table.
EUR/USD was down by 25 pips (-0.21%) to 1.1736, EUR/JPY was down by 13 pips (-0.10%) to 132.61, EUR/CAD was down by 22 pips (-0.15%) to 1.5215
The pound extended its slide (except against CHF) and was the second worst-performing currency of the session. However, the pound was rushed by late buyers and ended up as the second top-performing currency of the session
Market analysts couldn’t pinpoint a catalyst for the pound’s slide, but they suggest that lingering Brexit-related jitters and the looming FOMC statement may have prompted some profit-taking after a two-day rally.
As for the later rally, Barnier’s tweet may have been the catalyst since the pound found support after Barnier’s tweet.
GBP/USD was down by 15 pips (-0.11%) to 1.3160, GBP/CHF was up by 34 pips (+0.27%) to 1.2750, GBP/NZD was up by 32 pips (+0.16%) to 1.9805
Watch Out For:
- 1:00 pm GMT: CB’s leading Chinese index (1.1% previous)
- 1:00 pm GMT: SNB’s quarterly bulletin will be released
- 2:00 pm GMT: U.S. new home sales (631K expected vs. 627K previous)
- 2:30 pm GMT: U.S. crude oil inventories (-0.7M expected vs. -2.1M previous)
- 6:00 pm GMT: Fed expected to raise Fed Funds Rate target range by 25 bps to 2.00%-2.25% during the FOMC statement; read Forex Gump’s Event Preview
- 6:30 pm GMT: FOMC presser
- 9:00 pm GMT: RBNZ statement (OCR steady at 1.75% expected)