Forex news from the European trading session - 4 October 2018
Headlines:
- Ireland's Coveney: Not aware that UK has tabled any formal proposals on backstop yet
- New UK proposal on Irish border makes finding a compromise possible - EU source
- Saudi energy minister says that fundamentals aren't behind oil price increase
- ECB's Rehn: Sees no significant contagion from Italy
- IMF says Japan needs to continue accommodative monetary policy
- ECB's Rehn says market expectations on timing of first rate hike consistent with ECB statements
- Germany September construction PMI 50.2 vs 51.5 prior
- Italy's Garavaglia: Government has set 2019 and 2020 GDP target at 1.6%
- Japanese bonds are entering into uncharted territory
- Italy's Salvini: To provide €16 billion for citizens' income, pensions
Markets:
- GBP leads, NZD lags on the day
- European equities trade lower
- US 10-year yields up 3.4 bps to 3.215%
- Gold up 0.14% to $1,199.00
- WTI down 0.09% to $76.34
- Bitcoin up 1.63% to $6,543
Yields, yields, yields. That was pretty much the number one driver across markets in trading today. Things started off with Treasury yields rising before the start of European trading with 10-year yields moving above 3.20% for the first time since 2011. The rise in yields kept equities pressured and that resulted in a more risk off tone before European markets opened.
The yen led gains with USD/JPY trading around 114.30 to begin the session with the focus being on the losses sustained in the equities space along with key technical resistance levels pinning the pair lower.
EUR/USD and GBP/USD traded more steadily in a tight range as the former started the session around 1.1470 with the latter at around 1.2940 levels. Both currency pairs were dragged lower overnight as the dollar was bid on the back of solid economic data and Powell's more hawkish tone.
But the euro and pound both recovered in early trades with EUR/USD moving up to test the 1.1500 level while GBP/USD rose to a high of 1.2879. There wasn't much catalyst to the moves but higher European and UK yields are something worth noting in the midst of all of this as well. Yields in UK gilts traded to their highest levels since February and that enough to underpin the pound on the day.
And the gains didn't stop there. A report on a possible progress in the Irish border issue helped the pound gather fresh bids as cable shot up to a high of 1.2995 after. In turn, that lifted EUR/USD higher as well to touch a high on the day of 1.1506.
As the session draws to a close now, both pairs are off the highs for the day but continues to be underpinned ahead of US trading.
The biggest losers on the day are the Australian dollar and the New Zealand dollar. Both currencies already have had a rough week and things got worse. For AUD/USD, the pair continued to move lower in spite of higher Australian yields as risk sentiment and further yields spread divergence weighed on the currency. The pair started the session around 0.7090 before moving to lows of 0.7066 before recovering a little now.
NZD/USD saw similar action starting around 0.6505 before tracking to a low of 0.6484 on the day where it trades just above currently.
Looking ahead to US trading, it's going to still be all about yields once again so keep an eye out on that. But also, watch out for the impact of higher yields on the equities market. Right now, US futures are weighed lower but we've not seen much panic or massively nervous tones just yet. However, if yields threaten to break out in a big manner, expect some jitters to reverberate through markets at the very least. And let's not forget we have the US jobs report due tomorrow as well to add some spice into markets. Fun times.
