What to watch for on Thursday, September 29:
The dollar extended its recovery throughout the first half of the day, but radically changed course after the opening of Wall Street. The US government bond yield plunged with the 10-year yield, down some 20 basis points, which took a toll on the US currency. The index of dollar reached an all-time high of 114.78, to later pull back towards the 112.60 price zone.
Several US Federal Reserve officials were on the air, repeating the well-known message of another 75 basis points coming, targeting the Fed funds rate to be between 4.25% and the 4.75% in the first quarter of 2023.
The EUR/USD pair tumbled to a 22-year low at 0.9535, then extended its intraday rally to 0.9750, trading a handful of points below the latter late in the day. The EU energy crisis keeps local authorities on edge, and the EU Commission published a document assessing gas price measures.
Also, ECB President Christine Lagarde, participated in a US and European geoeconomics forum and stated that they will continue to raise rates in future meetings. In addition, Peter Kazimir, member of the Governing Council, and Martins Kazaks, Governor of the Bank of Latvia and member of the Governing Council of the ECB, were in favor of a rate hike of 75 basis points at the October meeting.
The GBP/USD pair was quite volatile amid the back and forth of the Bank of England. It managed to settle around 1.0880 amid widespread dollar weakness. The BOE decided to buy long-term UK government bonds from today to restore market conditions. It later confirmed that it would only be able to buy 1.025 million pounds in the emergency QE operation, well below the 5 billion expected. Long-term yields plummeted on the announcement. The central bank has also postponed the first gilt sales operations, which were due to start next week, until October 31 and continue thereafter. The fiscal strategy received strong international criticism.
USD/JPY showed little sign of life despite high volatility on the currency board, ending the day marginally lower at 114.10. Commodity-linked currencies outperformed the dollar, with AUD/USD trading at 0.6515 and USD/CAD at 1.3635. The USD/CHF pair is also down sharply, now hovering around 0.9765.
The price of gold soared and the XAUUSD is trading at $1,660 a troy ounce, its high for the week. Crude oil prices recovered, with WTI trading at $82.00 a barrel.
Technically, sharp downturns in major pairs look corrective amid recent overbought dollar conditions. However, rallies need to continue in the next session to confirm intermediate bottoms.
On Thursday, the focus will be on inflation germanwhich is expected to have increased by 9.4% year-on-year in September.
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Source: Fx Street