All G10 currencies, except the yen, gained against the US dollar in Asia, on speculations that the Federal Reserve (Fed) may fall behind the curve regarding the pace of its policy normalisation.
The pound surged to 1.2276 as the headline inflation in the UK accelerated from 0.6% to 1.0% year-on-year in September, versus 0.9% expected. Core inflation rose to 1.5% y/y, from 1.3% a month ago. The upside attempt in cable bumped into resistance pre-1.2280; the bias remains negative.
As the cheaper pound pushes the price of imported goods higher in the UK, the global recovery in commodity and oil prices is also expected to add to the inflationary pressures moving forward. The rise in the UK’s inflationary pressures could interfere with the Bank of England’s (BoE) unorthodox plans; preventing the BoE from a further rate cut in the mid-term, or even bring the possibility of a premature rate rise on the table. Hence, the likelihood of any pound depreciation below the 1.20 level against the US dollar is declining.
The EURUSD traded higher to 1.1026, yet with a limited upside potential heading into Thursday’s European Central Bank (ECB) meeting. The ECB expectations are dovish, as investors are craving for an expansion of the Quantitative Easing programme beyond March 2017. Any concrete action at Thursday’s meeting is quite unlikely, yet many see December as a good candidate for a concrete step. Therefore, the ECB's accompanying statement will again be in focus.
The Kiwi (+0.88%) and the Aussie (+0.72%) are among the best performers, as softer Fed expectations boosted the carry appetite in antipodeans, combined with fading speculations of a further rate cut in Asia Pacific.
The Reserve Bank of Australia’s (RBA) Lowe said that the ‘economy is adjusting well’, suggesting that we may be approaching an end in the mining slump. However, he added that a ‘further AUD rise would complicate the adjustment process’ despite the improvement in commodity prices, hence the current AUD-rate levels are ‘suitable’. The rise in the AUDUSD is expected to hit into a solid resistance at 0.7710/0.7730 mid-term resistance before the 0.7800 handle.
The lira (+0.15%) ranked among the lagging performers compared to its emerging market peers, as traders remain skeptical to build on their fresh long positions on the back of the anticipations of additional 25 basis points cut on Turkey’s lending rate on Thursday’s monetary policy meeting.
The FTSE opened upbeat, all sectors traded in the green. Basic materials (+1.91%), energy stocks (+1.19%), and financials (+1.13%) lead gains on the back of a rise in commodity prices and improved risk appetite.
According to the latest CFTC data, speculators turned most bullish on oil in more than two years. The net non-commercial futures positions surged to 413.65K contracts last week, suggesting a rising potential for a mid-term recovery towards the $55/60 levels. Yet, the sharp increase in long positions could trigger a temporary short squeeze, should the $50 level fail to provide support.
In the US, financials delivered better than expected performance in the third quarter. Goldman Sachs' Q3 results are due later in the day and should determine whether or not US stocks can build on the current positive sentiment throughout the session.