Forex news from the European trading session - 23 September 2021
Headlines:
- Key things to note from the BOE decision today
- BOE leaves bank rate unchanged at 0.10% as expected
- BOE's Woods: Cautiously optimistic that China will be able to avoid Evergrande becoming a major global issue
- ECB policymakers reportedly open to increase APP purchases to avoid cliff effect
- Chinese authorities warn local governments to prepare for Evergrande downfall - report
- China said to have given Evergrande instructions to avoid near-term default on dollar bonds
- Citi says that natural gas prices could quadruple from current levels in a chilly winter
- UK September flash services PMI 54.6 vs 55.0 expected
- Eurozone September flash services PMI 56.3 vs 58.5 expected
- SNB leaves policy rate unchanged at -0.75%, as expected
- Germany September flash manufacturing PMI 58.5 vs 61.5 expected
- France September flash services PMI 56.0 vs 56.0 expected
- Spain Q2 final GDP +1.1% vs +2.8% q/q prelim
Markets:
- CAD leads, JPY lags on the day
- European equities higher; S&P 500 futures up 0.6%
- US 10-year yields up 1 bps to 1.341%
- Gold up 0.2% to $1,771.85
- WTI down 0.5% to $71.88
- Bitcoin flat at $43,450
A quiet start quickly turned into a risk rally as Evergrande fears abated and the post-Fed momentum kept up, with European indices pushing gains a little over 1% and US futures also gaining by nearly 1% on the session.
However, a WSJ report kept markets in-check, capping the optimism as Chinese authorities are said to have warned local governments to prepare for a demise of Evergrande.
That saw risk trades pull back a little with S&P 500 futures trimming gains back down to around 0.5% to 0.6% currently.
In FX, there wasn't much of a pullback as risk-on sentiment dominated with the dollar and yen on the backfoot throughout the day.
EUR/USD stuck around 1.1710-20 levels as large expiries seen at 1.1700 is pulling price action a little, acting as more of a magnet on the day so far.
USD/JPY gradually crept higher from 109.90 to 110.00 as yields also pushed up following the more hawkish BOE communique in the past hour.
The pound was a notable beneficiary as such with GBP/USD moving up from 1.3680 to 1.3720 as the BOE signaled that conditions are starting to move in favour of tightening policy and that they could do so before the end of QE.
This comes despite more sluggish data on the recovery but as inflation continues to pose a threat to policymakers' view on the medium-term outlook.
Among commodity currencies, the loonie is leading the charge as USD/CAD is down by over 100 pips on the day. The drop in Europe was from around 1.2720 to 1.2650 as sellers broke below key near-term support to reclaim control of the pair, eyeing 1.2600 next.
The aussie and kiwi are posting modest gains with AUD/USD moving up from 0.7240 to 0.7270-80 levels and NZD/USD up from 0.7020 to 0.7050 levels.
As much as the Fed committing to a taper by year-end is a big deal in trading this week, the underlying tones and general reaction of the market suggests that what is happening in China is still the key driver alongside risk sentiment at the moment.
