With twin events at both the Federal Reserve and the US Treasury today, the United States Dollar is on the front end of the G10 this morning but is undoubtedly setting up for a day of high volatility trading.
Overview
First up, the Treasury Department announced its quarterly refunding early this morning and boosted its auction sizes for all notes and bonds, excluding the 20-year note, for a total auction of $112 billion. Coming off the heels of a report of a whopping $1.7 trillion budget deficit in fiscal 2023, this move was largely expected by markets but slightly less than consensus, and the Dollar fell slightly on the news but recovered most ground nearly immediately. This does signal that officials may be a bit concerned about the recent surge in yields and are attempting to keep prices steadier.
This afternoon traders are looking toward the interest rate decision from the Federal Reserve and subsequent press conference from Chair Jerome Powell. While the US interest rate will almost certainly remain on hold today, the Fed is likely to maintain a “tightening bias” as economic indicators from the nation through the last quarter have been remarkably hot. Many key market players have noted that they expect something of a flash recession to materialize during the final few months of this year as warning signs in underlining consumer-side data do still raise some flags, but markets have been wrong before. The Fed’s ideal situation is to wait and see how much effect its previous tightening measures have had on the macro picture, but its hand may be forced in December. Especially given the Treasury’s release this morning and the Fed’s recent propensity to lean on higher yields as a substitute for further tightening, Powell will no doubt have to answer questions about how much the central bank can rely on other economic bodies to help with the ongoing fight against inflation.
The Dollar is maintaining its bid bias today, as well, on continued grim news out of Israel and Gaza as scores were killed in a strike on the Jabalya refugee camp in northern Gaza yesterday evening. Geopolitical risk continues to be a heavy focus for Dollar bulls while market sentiment falters. US equities are set to open mildly lower today, and oil futures are higher in early trading.
What to Watch Today…
- Bank of England Policy Decision, Thursday 8 AM
- Monex USA Online is always open
EUR ⇓
The single currency faltered substantially yesterday and continued its slide this morning as markets digested the implications of less-bad-than-expected, but admittedly still not stellar, GDP and CPI data. When placed in comparison with the superhot US economy’s GDP of 4.9%, the Eurozone’s figure of a slight contraction in the third quarter of this year goes from bad to worse, and investor confidence in the region is no doubt shaken. The bond yield differential between European nations and the US, too, is a key point of contention as US yields do substantially exceed those of its European counterparts.
JPY ⇑
Japanese Yen, after yesterday’s major fall against all major currencies, is recovering ground this morning but remains well above several key psychological thresholds. Japanese authorities, after slightly loosening their yield curve control policies early Tuesday morning, intervened overnight to keep the 10-year yield just below 1%. JPY’s fortunes for the remainder of the year remain quite grim unless the Bank of Japan ends its negative interest rates in December.
