Yesterday’s FX intervention from the Bank of Japan (BoJ) has slowed the dollar bull trend a little. The amount of dollars sold will not be revealed until 30 September, but it should be in the billions. While the US Treasury said the US did not jointly intervene with the BoJ, the fact that it said it ‘understood’ why the intervention took place could raise expectations that G20 finance officials tweak FX language in their communique when they meet on 12 October. The US data calendar is light today and FX markets may consolidate in narrow ranges after a volatile week.
The CAD continues to be on the back foot due to low risk appetite; the CAD and its G10 commodity currencies have not benefited significantly from the wider USD decline following the BoJ intervention. The performance of the CAD in the short term continues to be mostly influenced by equity market developments. At the time of writing, USD/CAD is trading just outside of 1.3550.
EUR/USD has remained on the back foot in line with the global risk sentiment and the market’s concerns about the latest developments in the Russia-Ukraine conflict. Today’s highlight in the eurozone will be the release of September PMIs, and investors are expecting a further drop in economic contraction territory. This should keep European sentiment weak, especially after yesterday’s consumer confidence hit a record low, and may prevent any relief rally in the EUR for the time being. The 0.9800 level is looking increasingly fragile.
Following yesterday's divided Bank of England hike, the pound was somewhat lower. Today sees the big reveal of Chancellor Kwasi Kwarteng's ‘fiscal event’. If a currency can be safely funded, a combination of looser fiscal and tighter monetary policy is typically favourable for that currency. Investors' concerns about the UK's capacity to finance this package, however, is the reason for the underperformance. In the coming month, we favor GBP/USD reaching 1.10
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