• WTI crude oil down $4.64 to 78.84
  • US 10-year yields down 2.7 bps to 3.68%
  • UK 10-year yields up 33 bps to 3.83%
  • Gold down $27 to $1643
  • S&P 500 down 1.7%
  • USD leads, GBP lags (badly)

Today's price action was probably just an extension of the FOMC trade and the growing belief that Powell is going to over-tighten the economy into a recession. But the trigger was in the bond market, specifically UK bonds. UK 5 year notes had their worst day in recorded history, down 50 basis points(!). That came after a round of spending and tax cuts in Kwateng's budget.

Coupled with that the pound cratered. It took out 1.10 for the first time since 1985 and then promptly took out 1.09 on a cascade of selling into the London fix. You'd expect a bounce after that but the USD bid was relentless and it fell as low as 1.0840. The 1985 low is now just 300 pips away and there don't appear to be many buyers.

Even though EUR/USD fell 150 pips to a new low the euro still managed to put a beating on GBP. The problem for eurozone politicians is that the UK budget demonstrated what will happen to them if they spend too much or energy subsidies or do to much to stimulate growth. That puts them in a horrible predicament. Meanwhile, another 1.4% decline in the euro adds to imported inflation.

At one point early in the day a strong bid for Treasuries came in. That briefly looked like it could turn the mood and 10-year yields finished lower at 3.68% after touching 3.83%. The front end was also volatile with 2s in a range of 4.11-4.27%. At some point, you'd think there would be enough of a bid for safety to weigh but the bond bulls aren't exactly stampeding at what's been a brutal time for risk assets.

USD/JPY remains a major preoccupation as the game of chicken with the MOF gets underway. The pair added 94 pips today to 143.28. Everyone is eyeing the 145.00 and broad dollar strength makes it more likely that we'll get back there.

The commodity currencies suffered as well but -- oddly -- the declines in AUD and NZD were about double CAD. The loonie has been skidding hard so maybe it's a catch-up trade but it's still unusual to see on a day when oil was down 5.4%. Canadian retail sales were also weak today and I think the evidence is mouting for the BOC to pivot.

FX news wrap Sept 23 2022