FX market outlook

FX market outlook

US dollar steady as market awaits GDP numbers tomorrow.

The US dollar was well-bid as 10-year Treasury yields reached 4 ½ month highs during the past couple of days.  The 10-year yield in the United States was at 1.80% having reached as low as 1.32% back in early July in the aftermath of the Brexit referendum.  The rise in Treasury yields was due to renewed confidence that the Fed would soon resume to raise rates.

Euro / dollar however was still narrowly holding on to the 1.09 mark by trading at 1.0905 – around half a cent away from its recent 8-month low of 1.0849.  Dollar / yen was 104.60, with the 105 level mentioned by some market analysts as the next target for the pair.  In Japan, BoJ Governor Haruhiko Kuroda said that it was possible that the bank could spend less than its previous annual target in order to stabilize the 10-year yield at zero.  Under its current policy, the Bank aims to target the yield curve rather than fix the amount of asset purchases every year.

Furthermore, Kuroda said he would not try to lower super-long government bond yields, as it would only try to control bond yields of up to 10 years’ maturity.

Gold lost ground as well due to the strong dollar, as it dipped to as low as $1265 an ounce before recovering a little to 1268.

The market was bracing for GDP data out of the UK and the US on Thursday and Friday respectively.  UK GDP for the third quarter was set to grow by 0.3% quarter-on-quarter.  However, the impact of the figures could be limited given the uncertain outcome of the Brexit process.  The pound was holding on to 1.22 versus the US dollar at 1.2210, whereas euro / pound rose to 0.8927 after testing 0.89 the previous day.

In the United States, durable goods orders for September, together with weekly jobless claims and pending home sales will be watched for signs how manufacturing, the labor market and housing are doing.