The Greenback widened its lead against its peers as the minutes of the latest FOMC meeting highlighted further tightening prospects. On the flip side, higher-yielding commodity currencies gave up ground as the idea of higher borrowing costs spurred risk-off flows.
- U.S. building permits dipped from 1.25M to 1.24M vs. 1.27M forecast
- U.S. housing starts down from 1.27M to 1.20M vs. 1.22M consensus
- Canadian manufacturing sales down 0.4% vs. expected 0.6% drop
- U.K. CB leading index down 0.2% vs. earlier flat reading
- EIA crude oil inventories up 6.5M barrels vs. projected 1.6M increase
- FOMC minutes: “Further gradual increases” in rates consistent with growth
- EU official: Leaders ready to finalize Brexit deal as negotiations get close
- Another EU official: Not enough progress on Brexit has been achieved
- PM May open to extending Brexit transition period?
- Special Brexit Summit in November still in limbo
- U.S. refrains from branding China as a currency manipulator
Dollar bulls found reason to charge as the transcript of the latest FOMC policy huddle confirmed that the central bank has more interest rate hikes up its sleeve.
Policymakers mostly agreed that “further gradual increases” in borrowing costs “would most likely be consistent” with the U.S. economy’s pace of growth, inflation, and employment. Furthermore, officials noted that this would balance the risk of tightening too quickly or too slowly.
Recall that there was a lot of hubbub over the removal of the “accommodative” bit in the September statement, and it turns out that “almost all” committee members thought it was time to do so. However, a couple of FOMC members signaled that they would “not favor adopting a restrictive policy stance in the absence of clear signs of an overheating economy and rising inflation.” Any guesses who?
EU Summit jitters
Market watchers continued to keep close tabs on remarks from EU officials as Brexit deal discussions in the summit are taking place.
In her speech to EU counterparts, U.K. PM May hinted that they’re open to extending the two-year transition period by a year in order to have more time to iron out trade issues, particularly in the Irish border. But while she expressed confidence in a good outcome and called for “courage, trust, and leadership” on both sides, many pointed out that she hasn’t offered fresh proposals as European Council President Tusk demanded.
Sources present in the summit also gave mixed intel, with one citing that leaders are ready to finalize the divorce terms as negotiations are getting close and another noting that “not enough progress has been achieved.”
In addition, the prospect of a special Brexit summit in November is still in limbo as the leaders are waiting to see decisive progress before arranging another get-together. Word on the street is that Germany and France are already making preps for a “no deal” situation.
Risk appetite wobbles
U.S. stocks took hits as the drop in energy prices and the prospect of higher borrowing costs weighed on investors’ outlook.
- Dow 30 index closed 91.74 points down to 25,706.68 (-0.36%)
- Nasdaq is down 2.79 points to 7,642.70 (-0.04%)
- S&P 500 index is lower by 0.71 points to 2,809.21 (-0.03%)
Crude oil chalked up another day in the red as the EIA inventories report revealed a larger than expected increase of 6.5 million barrels, despite the closures of some refineries in the Gulf Coast during Hurricane Michael. Gold was slightly weaker as well.
- The precious metal is down to $1,223.07 per troy ounce (-0.11%)
- WTI crude oil fell to $70.05 per barrel (-0.27%)
Major Market Mover(s):
The scrilla was in a positive mood even before the release of the FOMC minutes as bulls were likely looking forward to seeing more hawkish remarks from policymakers.
USD/JPY climbed from 112.09 to a high of 112.72; EUR/USD sank from 1.1576 to 1.1498; GBP/USD initially climbed to a session high of 1.3149 then fell to 1.3100, and USD/CHF is up to .9952.
The comdoll gang found themselves deep in negative territory once more, with the Loonie being the biggest loser of ’em all. Weaker crude oil prices on the heels of a larger than expected EIA inventory build and the beef with Saudi Arabia were also dragging factors.
USD/CAD climbed from 1.2969 to 1.3026; CAD/JPY retreated from 86.63 to a low of 86.17; EUR/CAD held on to the 1.5000 mark, and AUD/CAD bounced off .9234 to .9261.
Watch Out For:
- 12:30 am GMT: Australian employment change (15.2K expected, 44K previous)
- 12:30 am GMT: Australia’s unemployment rate (no change from 5.3% expected)
- 12:30 am GMT: Australia’s NAB quarterly business confidence index
- 12:30 am GMT: BOJ Governor Kuroda’s testimony