What to watch for on Wednesday, October 12:
The US dollar strengthens at the end of Tuesday and after an intraday push that kept it in the red for most of the American session.
The Bank of England(BOE) introduced additional measures to improve the conditions of the financial markets. The central bank will temporarily suspend corporate bond sales this week, while it intends to buy up to £5bn worth of indexed gilts.
In addition, the UK published its monthly employment report, which was generally encouraging. The ILO unemployment rate dipped to 3.5% in the three months to August, up from 3.6% previously. However, the number of applicants for unemployment benefits unexpectedly increased by 25,500 people in September, while the growth of the total average salary (including bonuses) was 6.0% and the growth of the normal salary (excluding bonuses) was 5.4 % in the three months to August.
The chief economist of the International Monetary Fund (IMF), Pierre Olivier Gourinchas stated that the worst is yet to come and that 2023 could be a very bad year in terms of global growth.
Before the US lockdown, BOE Governor Andrew Bailey spoke out and sparked another round of risk aversion. Among other things, he said that the Financial Policy Committee (FPC) made the decision to intervene in the financial market after observing that the volatility of the markets exceeded the resistance tests of the banking system. Bailey also said they are facing unprecedented volatility at the long end of the gilt market, but also signaled the end of their emergency intervention by saying they will exit the market by the end of the week. The comments spurred risk aversion, sending Wall Street into the red and the dollar rising again.
On the other hand, the president of the Cleveland Federal Reserve, Loretta Mester, reiterated the well-known hawkish message on Tuesday. Among other things, Mester said that the biggest risk is that the Fed does not raise rates enough, adding that he does not expect the central bank to lower rates in 2023. Finally, he added that the fight against inflation is painful “but must happen.”
US government bonds fell sharply at the start of the day, pushing yields to new all-time highs. The 10-year Treasury yield hit a high of 4.0%, while the 2-year yield hit an intraday high of 4.35% before the open. Yields ended the day slightly higher and off their intraday lows.
wall Street tried hard to make up ground, but failed miserably. The Dow Jones Industrial Average started the day on a positive note and, at some point, was up about 300 points. Before the close it cut all its gains, while the S&P500 and the Nasdaq Composite spent the day in the red.
EUR/USD is trading around 0.9710, while GBP/USD has tumbled towards 1.1000. Commodity-linked currencies also trimmed gains, with AUD/USD now trading around the 0.6270 area and USD/CAD around 1.3800.
The US dollar extended its advance against its safe-haven rivals, with USD/CHF now trading at 0.9960 and USD/JPY at 145.80.
XAUUSD flirted with $1,684 a troy ounce, but lost ground before the close and settled at $1,666 a troy ounce. Crude oil prices extended their weekly decline after US authorities asked Saudi Arabia to delay OPEC+ production for a month, a request that was dismissed by the Saudis. WTI is now traded at $88.40 a barrel.
In the United States, the Consumer Price Index for September will be published, which is expected to have risen at an annualized rate of 8.1% in September, which represents a relaxation compared to 8.3% in the previous month. However, core inflation, which excludes volatile food and energy prices, is forecast to rise 6.5%, up from 6.1% previously.
Source: Fx Street
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