FX market outlook

FX market outlook

Posted on Friday, October 27 2017 at 9:06 am GMT+0000

Dollar stands tall ahead of GDP; euro records 3-month low on “dovish tapering”

The US currency stood higher on the day as the Asian session was nearing completion, though barring a development that makes US tax reform more likely, that was mostly due to other majors’ weakness rather than any dollar specific factors. Market participants are awaiting the advance estimate of US third quarter GDP growth which is due at 1230 GMT.

The dollar’s index against a basket of currencies was trading 0.3% up on the day, near the day’s high and not far below the 95 handle. It today rose to its highest since July 20. The US House of Representatives yesterday passed a budget blueprint, paving the way for tax overhaul to be delivered. In terms of today’s highlight, economic activity in the world’s largest economy is expected to have grown by 2.5% on an annualized basis during the third quarter of the year.

Dollar/yen recorded a three-and-a-half-month high of 114.30 with the pair last being up by 0.2% and not far below the aforementioned peak. Japan saw the release of September inflation figures today, though forex market participants’ reaction to the numbers was limited. Core consumer prices grew 0.7% y/y, the same pace as in August and rising for a ninth consecutive month. This was below expectations for an increase by 0.8%.

Euro/dollar was trading 0.2% lower around 1.1625 after losing 1.4% the preceding day. The pair today hit a three-month low of 1.1614. Eurozone’s common currency was hurt after the ECB dampened expectations for a rise in interest rates next year as it announced the details of its asset purchase program that will be in effect starting next year. Monthly asset purchases would amount to 30 billion euros per month (from the current 60 billion) and the program would run for nine months with the possibility for an extension should the ECB deem such a move is warranted (i.e. the program is open-ended in nature).

The dollar was also gaining ground relative to sterling, the loonie, the kiwi and the aussie. Pound/dollar was last 0.5% down, trading close to a near three-week low of 1.3083. Dollar/loonie was 0.3% up, near 1.2886, its highest since July 12 touched today. Kiwi/dolar was 0.1% lower, near the multi-month low of 0.6829 hit today. The aussie was hurt as the government lost its majority after it was ruled that Barnaby Joyce cannot remain in parliament as he was also a citizen of New Zealand when elected. Aussie/dollar was 0.3% lower, falling to 0.7623 earlier in the day, its lowest since July 11.

In commodities, gold was 0.1% lower, trading the near three-week low of $1,265.41 an ounce it posted earlier. The dollar-denominated precious metal is hurt on the back of the greenback’s strength. WTI and Brent were lower by 0.1% and around 0.05%, trading at $52.60 and $59.29 a barrel respectively.

The University of Michigan Consumer Sentiment survey due at 1400 GMT and the US Baker Hughes oil rig count at 1700 GMT will also be gathering attention.