FX market outlook

On Wednesday, economic market drivers were limited as the economic calendar was lacking important data. However, a final list of subsequent Fed candidates and speculations that Trump might nominate a less hawkish candidate pressured the dollar lower during the Asian session, giving a push to other major currencies. However, growing expectations of a third-rate hike in December kept the dollar index above 93 key-level.

During the Asian session, the dollar index, which gauges the dollar’s strength against its major peers, was trading 0.21% lower at 93.49, below the 1 ½-month high of 93.92 reached on Tuesday. The weakness in the dollar arose after a final list of Fed candidates was given to Trump according to sources familiar with the matter, with markets pricing in that the dovish Fed Governor, Jerome Powell, who has been recommended as a candidate, could be the next Fed Chair after the term of the current Fed chief, Janet Yellen, expires in February. Powell is seen less hawkish than the Fed board governor, Kevin Warsh, who is said to be currently in favor after the latter showed opposition to the Fed’s bond-buying program in the past. The list also includes Janet Yellen, whose re-appointment is seen as less likely by Trump’s inner cycle, the National Economic Council Director, Gary Cohn, the Standford economist John Taylor as well as the economist, Glenn Hubbard, and US Bancorp Chairman Richard Davis

Next up, the focus will turn on Janet Yellen’s speech at the at the Community Banking in the 21st Century Conference.

Dollar/yen was 0.25% down at 112.55.

Although political uncertainty in Spain and Germany continued weighing on the euro, the common currency gained 0.21% on the back of a weaker dollar, rising to $1.1769. Meanwhile, the Catalonian leader Carles Puigdemont argued late Tuesday that independence would be declared by Catalonia in a matter of days, while earlier, Spain’s King Felipe VI stood against the referendum saying that the Catalan leaders violated democratic principles.

The pound was up by 0.26% at $1.3269, a day after the Brexit minister David Davis signalled the possibility of “no deal” between the UK and the EU. However, he added later that officials would work on possible scenarios to avoid any errors in negotiations.

The kiwi rebounded during early Asian hours from its one-month low of $0.7149 touched yesterday due to a 2.4% reduction in dairy prices to $0.7204. Still, these gains were short-lived as the kiwi tumbled back to $0.7169 before the session-end.

Regarding energy markets, oil prices were pressured despite the weekly API report on US crude stock inventories showing that US inventories declined by 4.079mn barrels in the week ending September 29 compared to a reduction of 0.761mn barrels seen previously. However, US gasoline stockpiles rose by 4.91mn barrels. WTI crude was 0.58% down at $50.13 per barrel and Brent retreated by 0.50% to $55.72 ahead of the EIA crude inventory levels published later today.