After riding quite the roller coaster yesterday following the release of both the European Central Bank’s interest rate decision and US GDP, the United States Dollar is on the back foot this morning.
Overview
After the European close yesterday, the Dollar’s fortunes flipped on the day as investors began to assess the real impact and future implications of GDP running so hot and adjust their expectations for Q4. Interestingly, market consensus is that while yes, yesterday’s GDP release was a remarkably high one, Q4 is widely expected to show very significant cooling, and Steve Cohen went so far as to call for a mild recession in Q4 2023, followed by a quick rebound in early 2024. It’s important, however, to take these calls with a grain of salt – one does recall the ‘100% certainty’ calls for recession last fall that never materialized.
Following yesterday’s packed data day, at 8:30 this morning the Federal Reserve’s preferred inflation gauge of PCE (personal consumption expenditures) showed a series of figures consistent with “stalling disinflation,” something Jerome Powell and co. do not want to see, especially following such a hot GDP release. The core PCE number this morning came in at 0.3%, on expectation but still quite the tick-up from the prior month’s reading at -0.1%. Fed officials have noted that high treasury yields could take the place of a final interest rate hike this year, but stalling disinflation coupled with GDP is undoubtedly going to change the calculus at least slightly. The statement released from the central bank on November 1 will be absolutely crucial in determining just how much if any, tightening is left to come from the Fed. The US consumer does remain resilient, but major players in the market expect this to flip in the coming months. In today’s PCE release as well were wage growth and personal spending, and spending continue to consistently outpace wage returns – undoubtedly a warning sign for the future.
Geopolitical risk appetite, as well, is of importance this morning as reports from Israel say that Qatar-led negotiation talks are “progressing quickly” to achieve a “cease-fire” and a deal involving the return of hostages is in the works.
What to Watch Today…
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AUD ⇑
The Australian Dollar is trading nearly half a percent stronger against the USD this morning and is setting the stage for a second straight weekly gain as oil prices rose overnight. Regional stock indexes also rose to start the day, boosting both AUD and its counterpart in New Zealand. Continued geopolitical instability is showing to prove both a floor and a ceiling for the Antipodeans, as investors seek out less risk-driven currencies but simultaneously said risk holds oil prices high.
JPY ⇑
Japanese Yen rebounded overnight after breaking through a key intervention threshold yesterday, but continues to bounce close to levels that prompt speculation on the actions of the Bank of Japan during next week’s policy meeting. Though ‘rate checks’ from the nation’s central bank do not constitute an actual intervention on FX pricing, many traders believe that this is, in fact, happening and could be a precursor to wider action.
