FX market outlook

FX market outlook

Dollar consolidates gains in Asian trade; oil extends gains.

The US dollar consolidated against the yen in the Asian session today after hitting a fresh five-month high on Tuesday. The greenback was given an added boost after strong US retail sales data. There was a pause in the US currency’s rally today, allowing the euro and sterling to rebound slightly. The dollar index fell from a multi-year high reached yesterday and dropped below 100 in the Asian session. The US 10-year Treasury note yield slipped from a 10-month high of 2.3%.

Despite the slowdown in the dollar’s rally that was primarily induced by Trump’s win and his plans for fiscal stimulus, investors still expect the greenback to be supported due to expectations of rate hikes by the Federal Reserve. Several Fed speakers this week have indicated that it was appropriate to raise interest rates soon and perhaps by the next FOMC meeting in December.

The dollar dipped to an Asian session low of 108.78 yen but soon recovered to the 109 yen handle, just shy of yesterday’s five-month peak of 109.32.

The euro rose to a session high of $1.0758, moving off an 11-month low of $1.0708 touched on Monday.

Sterling climbed to $1.2486 after a choppy session yesterday when the pound fell to $1.2378.

The Australian dollar fell briefly after disappointing wages data which reached record lows and raised concerns about whether inflation would remain subdued. The wage price index for Q3 rose 0.4% quarter-on-quarter, less than the 0.5% rise seen in the previous quarter.

Gold rebounded from a five-month low $1211.38 and hit a session high of $1232.89. The precious metal fell over 4% over the last three days as the dollar strengthened. The two assets tend to have an inverse prices relationship.

Oil rose again today on hopes that oil producing nations will soon finalize a deal to limit output. Brent edged up to to $47.35 a barrel while WTI climbed to $46.15 a barrel.

The rest of the day will be busier as markets will focus on important UK employment data and Fed speakers which include James Bullard, Neel Kashkari and Patrick Harker.