ForexLive European FX news wrap: Dollar finds footing, bonds on edge

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US federal budget deficit for August 220 billion against 213.5 billion expected
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Securities:

Markets:

  • USD leads, CAD lags the day
  • European equities down; S&P 500 futures down 0.7%
  • US 10-year rates up 12 basis points to 3.825%
  • Gold down 0.6% to $1,650.23
  • WTI Crude up 0.3% to $82.38
  • Bitcoin down 0.5% to $19,467

After a broad relief in the markets yesterday, we are seeing a return to old habits, with bonds selling off a bit as the dollar rises and equities fall. British Prime Minister Liz Truss came out to defend the government’s policy plans and pushed back on any suggestion of a budget reversal.

Despite some nervous ticking upwards in bond yields, 30-year gilt yields moved little around 3.93% on the day. However, there is a noticeable sell-off in Treasuries across the curve with 2-year yields up 11 basis points to 4.20% and 10-year yields up 12 basis points to 3, 82%.

That kept pressure on stocks, with US futures pushing lower after a strong rebound yesterday. S&P 500 futures are down 0.7% while European indices are also coming under downward pressure, with German inflation expected to top 10% in September.

The dollar remains in a decent position, recouping yesterday’s losses as GBP/USD was pushed down 1% to 1.0765 initially before paring that loss and holding levels around 1.0840 -70 at the moment.

USD/JPY continues to hold momentum just below 145.00 as buyers slowly target the level again despite intervention fears. Meanwhile, EUR/USD was initially dragged to a low of 0.9635 before holding at its 100 hourly moving average and now bouncing back to almost unchanged levels at 0.9730.

Commodity currencies continue to remain under pressure with USD/CAD up 0.4% at 1.3660, albeit far from previous highs of 1.3755. Next, AUD/USD is down 0.3% to 0.6500, but has at least cleared its previous low also at 0.6435 as the USD pulls back a bit.

A report of potential PBOC intervention is also something to consider, taking away some of the dollar tailwind with month-end trading also in focus.

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