Forex today: US dollar down 0.3%, risk-off hits higher betas, US yields/politics the driving force

• The US dollar was 0.3% lower on Wednesday.
• US 10yr treasury yields initially rose from 2.42% to 2.47% - the highest in six months.
• Trump not decided on Fed chair yet.
• US duable goods and UK Q3 GDP data was strong.
• Higher betas take the brunt of the bear's domination.
• US stocks hit the skids on poor earnings reports.

Forex today was fuelled by stronger than expected US data that drove US yields higher still, however ...

The DXY shed 0.3% overnight, potentially on intra-Republican Party infighting, although there really wasn't a fundamental reason reported on the move, and strangely, the move came after a better than expected durable goods number, rising 2.2% in September and above the 1% expected, boosting the US GDP trackers. At the same time, US Treas. Sec. Mnuchin crossed the wires saying how excited he is with the progress on tax reform, a driver that is front and centre of the markets right now. 

There was a couple of headlines around who Trump might be selecting for Fed chair, while dove Powell still has a big lead at the bookies, while the director of the National Economic Council in the Trump administration, Gary Cohn, has been ruled out, as Trump needs him to concentrate on tax reform. Yesterday, the Pres reportedly took a straw poll at his tax reform meeting with John Taylor supposedly the winner. Politico was also reporting that Trump is not quite ready to announce a new Fed chair this week, so this looks to remain up in the air for next as well. Yellen's term is up on the 3rd of Feb 2018, so there is not a great deal of time left if there is to be a smooth transition during the change around.

Meanwhile, US 10yr treasury yields initially rose from 2.42% to 2.47% - the highest in six months before dropping back to 2.43%. However, the 2yr yields initially rose from 1.59% to 1.62%, making for a nine-year high – before retreating to 1.59%. Additionally, the Fed fund futures yields were still pricing in the chance of a December rate hike at 99%.

As for the other currencies, EUR/USD  rose from 1.1755 to 1.1818, supported in European trade by a strong confidence survey and propelled higher with a lower DXY.  GBP/USD stole the show and made a fierce comeback from 1.3120 to 1.3272  on the back of a stronger than expected GDP report, much to the surprise of the bears around the UK economy and Brexit pessimism. A 0.4% reading in Q3 vs 0.3% expected for an annual pace of 1.5% puts the BoE November meeting back on the map, although makes for a mixed picture for the MPC to meet on, as growth in the economy is still sluggish by such measures. The cross, EUR/GBP, hit the skids overnight on the back of the report, dropping to 0.8879 before correcting to 0.8923 in NY.

USD/JPY tallied up a score on the 114 handle to a three-month high of 114.24 before the US stock market handed control over to the bears on poor earnings, dragging the yen higher to 113.50. However, it was the higher betas that took the brunt of the bear's domination. The Antipodeans grinded lower, with the Aussie extending the slide post the CPI disappointment to 0.7690 (copper dropped as well in risk-off markets) while the Kiwi fell to a five-month low at 0.6861. Lastly, USD/CAD rallied from 1.2650 to a three month high at 1.2817 following a cautious Bank of Canada on-hold decision.

Key events ahead

Analysts at Westpac noted the key events for Asia today: "NZ: A trade balance of -$900m is expected for Sep, higher than August’s -$1.2bn, comprising a rise in exports and a lesser rise in imports.

Australia: Q3 trade prices are released. Import prices are expected to fall 1.8% (Westpac 2.0%) while export prices are expected to fall 4.0% (Westpac 3.2%) with the AUD stronger over the quarter. RBA Deputy Governor Debelle gives a speech titled “Uncertainty” in Sydney, 6:45 pm local time."
 

Key notes from US sesison

• Wall Street hit by poor earnings reports
• UK Q3 GDP: Growth remains sluggish - Wells Fargo
• US New Home Sales: Strong rebound to highest pace since Oct 2007 - Wells Fargo
• Gold intermarket: highly correlated to US stocks, 100 DMA supports
• Trump considering keeping Yellen on as Fed's Chair - Fox
• US Durable Goods Orders: Continued firming in factory sector data - Wells Fargo