Forex Today: Key PMI data in focus as choppy trading persists

23 October, Friday: Key market developments

October’s preliminary Purchasing Managers' Index (PMI) reports are in focus. Investors await releases from Germany, the Eurozone, the United Kingdom (UK) and the United States (US), with major currency pairs holding inside their weekly ranges during Friday’s European morning.

Below 102.00, the US Dollar (USD) Index is recovering after Thursday’s marginal decline. Risk aversion cushioned the USD’s losses, but a sharp fall in US Treasury bond yields put the currency under pressure. On Thursday, the benchmark 10-year US Treasury bond yield slid more than 3%, moving below 5% for the first time in a month. The yield is recovering early Friday, though it remains just under 5%. US stock index futures are mixed, following Thursday’s nearly 3% decline in the Nasdaq Composite and a fall of more than 1% in the S&P 500.

US yield curve shift favours defensive currencies

Recent market movements suggest a “subtle regime shift,” according to ING analysts, with “higher energy prices no longer mean higher rates forever; instead, the long end is starting to express a little more fear about growth.” Against that backdrop, their assessment is that “this environment probably favours a little more outperformance of the defensive currencies over commodity currencies.” ING nonetheless warns that “until the rock-solid short-end of the US yield curve starts to buckle, it is hard to make the case that the Dollar needs to fall across the board,” leaving the US currency supported despite increasingly visible growth concerns at longer maturities.

September Retail Sales in the UK fell 0.4% month on month, the Office for National Statistics reported on Friday. After August’s 0.7% increase, the decline was steeper than the market forecast of 0.1%. GBP/USD showed little response to the release, with the latest trading largely flat just below 1.3400.

Japan’s National Consumer Price Index increased 2.1% year on year in September, up from August’s 1.9% rise, data released earlier in the day showed. The Jibun Bank Manufacturing PMI slipped from 54.1 in September to 53.3 in October. Over the same period, the Services PMI rose from 51.3 to 52. Following Thursday’s decline of more than 0.8%, USD/JPY is recovering towards 157.00, up about 0.2% on the day.

Australia’s flash S&P Global Composite PMI fell to 47.7 in October from September’s 51.3, signalling a contraction in private-sector business activity. AUD/USD remains subdued above 0.7020, showing limited movement despite the disappointing release.

EUR/USD found stability above 1.1200 early Friday, following a lower close on Thursday.

Gold extended its decline during Asian trading, reaching a three-month low below $4,000 after Thursday’s loss of about 2.8%. By Friday’s European morning, Gold is trading just above that level, with little momentum behind its recovery.

Gold under pressure as oil and inflation eclipse US equity rout

Despite falling equities and Treasury yields, ING analysts observe that gold prices "failed to benefit from yesterday's equity sell-off and the significant fall in US Treasury yields, with the 10-year yield falling back below 5%." Safe-haven demand offered no support; instead, they say, "gold prices came under pressure." ING sees the market as "more focused on higher oil prices and what it could mean for inflation — and ultimately central bank policy," indicating that changing expectations for the policy response to energy-led inflation currently carry more weight for bullion than movements in equities or US yields.