The key theme overnight is the USD recovery continuing, helped by some momentum on tax reform while UST yields have nudged higher.
Currency markets were largely tracking sideways until a report came through that Republicans have laid out a plan for fast tracking tax reform, with Brady (Chair of the House Ways and Means Committee) saying “We will release a consensus document with the core elements of big, bold tax reform”, with more details during the last week of September. With Trump meeting members on both sides of the house, the aim will be to get some bipartisan support to increase the probability of its success.
That news has boosted the USD, with the major currency TWI up 0.5%, extending its recovery to three days after the prior seven-day losing streak. It’s a healthy sign for the USD although it’s too early to celebrate its possible turnaround. PPI data came in slightly softer than expected, ahead of tonight’s more important CPI release. After disappointing for five months in a row, the consensus is expecting a modest increase and if that doesn’t happen we might all but rule out a possible Fed hike in December and the USD could come under renewed downward pressure.
In other economic news, the UK unemployment rate fell to a 42-year low of 4.3% but wage growth remained anaemic, coming in slightly below expectations and not keeping pace with CPI inflation. The lack of real income growth muddies the waters for the BoE which meets tonight, and this should moderate how hawkish the Bank is, as it weighs up high CPI inflation against a softer economic backdrop. GBP was weaker after the result but for the day overall the movement has been in line with EUR. EUR and GBP are both down around 0.6-0.7% to 1.1880 and 1.3200 respectively, with the stronger USD in the driving seat.
The NZD is down 0.7% to 0.7235, driven by USD strength and there is nothing more to say other than the currency seems to be well contained within a range of around 0.7150-0.73. Of the commodity currencies, AUD and CAD have done slightly better, with the AUD down 0.4% to 0.7985 and CAD holding its ground around 1.22. The CAD has been supported as oil prices have been boosted by reports from the IEA and OPEC that forecast stronger demand. This follows reports yesterday that OPEC is discussing an extension of its curb on production by at least another three months. Brent crude is up 1½% through $55, its highest level since April.
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