10YR US Yield Ends Above 4% for 1st Time Since 2008; DXY Soars

USD/JPY Surges to 32-Year High, Bailey Comments Prop Sterling

Summary:

“Just another manic Monday” in early Asia after the Dollar surged against its rivals driven by rising interest rates. The benchmark US 10-year bond yield rose above 4% (3.96% Friday) for the first time since 2008, settling at 4.02%. Two-year US rates rocketed 16 bps higher to 4.47%.

The catalyst was a rise in the US University of Michigan Consumer Sentiment Index up to 59.8 in October from 58.6 in September. Core US Retail Sales also beat estimates, up to 0.1% from -0.1%.

A favoured gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) soared 0.63% to 113.10 (112.45 Friday).

The Sterling (GBP/USD) plunged 1.3% to finish at 1.1180 (1.1317) in New York after British Prime Minister Liz Truss fired finance minister Kwasi Kwarteng.

Over the weekend, Bank of England Governor Andrew Bailey said inflationary pressures might require stronger interest rates. In early Asia, the British Pound jumped 50 pips to 1.1230 (1.1180).

Against the Japanese Yen, the US Dollar rocketed to 148.86, a fresh 32-year high before easing to settle at 148.62. On Friday, BOJ Governor Kuroda said raising rates now was inappropriate.

The Euro (EUR/USD) slumped 0.53% to 0.9720 (0.9778), wiping out Thursday’s gain. Broad-based US Dollar strength fuelled by rising bond yields weighed on the shared currency.

The Aussie (AUD/USD) plunged 1.67% to 0.6205 (0.6295) while the Kiwi (NZD/USD) plummeted 1.44% to 0.5562 (0.5638). Risk aversion which pulled stocks lower weighed on the antipodeans.

The US Dollar rallied against the Asian and Emerging Market Currencies. USD/CNH (Dollar-Offshore Chinese Yuan) jumped to 7.2165 (7.1800). USD/THB (Dollar-Thai Baht) rose to 38.25 (38.00).

Wall Street stocks fell. The DOW settled at 29,630 (30,082) while the S&P 500 slid to 3,585 (3,675).

Japan’s Nikkei 225 Stock Index dropped to 26,605 from 26,780 Friday.

Other economic data released Friday saw New Zealand’s September Business Index fall to 52.0 from a previous 54.9 and lower than estimates at 52.9.

China’s Annual September CPI matched forecasts at 2.8% while September PPI fell to 0.9% from a previous 2.3%, and lower than median forecasts at 1.0%.

China kicked off its Communist Party Congress this weekend with President Xi Jinping securing a landmark 3rd term in power.

• GBP/USD – Sterling had another roller coaster ride as Liz Truss attempted to restore confidence to her government. Truss replaced Treasury head Kwarteng with Jeremy Hunt, a previous Cabinet member. BOE Governor Andrew Bailey’s comments for higher rates also boosted the British currency. GBP/USD was last at 1.1230 from Friday’s NY close at 1.1180.
• USD/JPY – The US Dollar soared to a fresh 32-year high at 148.86 overnight before easing to settle at 148.62 at the close of trade in New York. Rising US bond yields continued to drive this currency pair north. In choppy trade the overnight low was at 147.09.
• EUR/USD – The Euro reversed its rally at 0.9778 on Thursday, tumbling to 0.9720 at the close of trade in New York Friday. Overnight low traded for the shared currency was at 0.9706.
  Despite ECB concerns over intensifying inflation in the Eurozone, sentiment stayed bearish.
• AUD/USD – The Aussie Dollar plunged to close at 0.6205 from Friday’s open at 0.6295. Broad-based US Dollar strength and weak Asian and EMFX weighed on the Battler. Overnight the AUD/USD traded to a low of 0.6188, a level not seen since April 2020.

On the Lookout:

Today’s economic calendar kicks off with New Zealand’s Business NZ Performance of Services Index (a diffusion index for sales, new orders, inventories, and employment – f/c 56.6 from a previous 58.6 – ACY Finlogix).

In China, the Chinese Communist Party had its 20tgh National Congress (11 am Sydney). China’s PBOC (People’s Bank of China – the central bank) is expected to announce it’s 1-year MLF (medium term lending facility) loan rate.

China’s 1-year MLF rate currently stands at 2.75%. There are no estimates or forecasts given. China also releases its Foreign Direct Investment (FDI) (y/y f/c 15% from previous 16.4% - ACY Finlogix).

China also releases its September Balance of Trade (Surplus f/c USD 81 billon from a previous USD 79.39 billion). Chinese Exports (y/y f/c 4.1% from 7.1%), Imports (f/c 1% from 0.3% - ACY Finlogix).

Japan follows with its August Industrial Production (m/m f/c 2.7% from 0.8%; y/y f/c 5.1% from -2.0%) and Japanese August Capacity Utilisation (m/m f/c 1.3% from previous 2.4% - ACY Finlogix).

Italy kicks off European data with its September Final Inflation Rate (m/mf/c 1.7% from previous 0.9%; y/y f/c 8.9% from 8.4% - ACY Finlogix).

Canada releases its August New Motor Vehicle Sales report (f/c 149k from 135.17k – ACY Finlogix).

The US releases its NY Empire State Manufacturing Index for October (f/c -4 from -1.5 ACY Finlogix).

Trading Perspective:

Boosted by rising bond yields, the US Dollar soared against all its Rivals abruptly ending its downside correction on Thursday. The benchmark 10-year US treasury bond yield rebounded, climbing 6 basis points to finish above the 4% mark (4.02%) for the first time in 14 years. At the end of the day, it’s interest rates that drive currencies. FX 101.

Expect FX markets to remain jittery on “just another manic Monday”.

• GBP/USD – Sterling continues its roller coaster ride with comments from Bank of England Governor Bailey the latest prop. In thin pre-Asian trade, the GBP/USD took off to a high at 1.1280 from 1.1230 and its New York close at 1.1180. Look for immediate resistance at 1.1270 followed by 1.1300 and 1.1330. Immediate support lies at 1.1180, 1.1140 (overnight low traded was 1.1142). Expect more volatile moves in a likely range of 1.1150-1.1300.
• USD/JPY – The Dollar’s climb against the Yen went without much vocal resistance from BOJ officials. That’s because the Greenback’s rally was more broad-based this time round, ie higher US Dollar against all the other currencies. Immediate resistance lies at 149.00 followed by 149.50. Immediate support is found at 148.20, 147.70 and 147.20. The 149-150 level is sensitive with some verbal intervention likely today.

(Source: Finlogix.com)

• EUR/USD – The Euro’s rally was cut short with the broad-based US Dollar rally, closing at 0.9720 from Friday’s open at 0.9778. Despite hawkish comments from some ECB officials (Vasle and Centeno), sentiment toward the shared currency remains decidedly bearish. On the day, look for immediate support at 0.9705 (overnight low 0.9706) followed by 0.9685. Immediate resistance can be found at 0.9750, 0.9780 and 0.9810 (overnight high traded 0.9809). Likely range today 0.9700-0.9800. Continue to sell rallies.
• AUD/USD – Slip-sliding away, the risk-off sentiment and an overall stronger Greenback pushed the Aussie Battler lower to 0.6205 at the close of New York trade from 0.6295. Look for immediate support today at 0.6195 (low traded in early Asia today was at 0.6197). The next support level is found at 0.6165. On the topside, immediate resistance is found at 0.6240, 0.6290 and 0.6330. Although it is difficult to get too bearish at current levels, the Aussie remains heavy, likely range today 0.6180-0.6280.

It's just another manic Monday in FX land, keep those tin helmets on. Happy trading all.

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