Sentiment Remains Fragile; Stocks Falter on Wednesday

In the FX, EURUSD and GBPUSD traded lower today. At the same time, the USDJPY pair continues to carefully climb up, boosted by yet another leg higher in US yields, slowly attacking the psychological level of 150. Chances are high for another BoJ intervention at that level, although the previous intervention at 145 has failed to stop the Yen’s decline.

Nevertheless, caution is the order of the day amid worries about an impending recession, particularly in light of Beijing’s disclosure of the greatest number of COVID cases in the last four months and market bets on more dramatic global rate increases to combat excessive inflation. 

Central banks in action

Despite the UK’s fiscal policy reversal, the annualized Consumer Price Index (CPI) increased by 10.1% in the country compared to the predicted 10.0% and the preceding 9.9%, putting pressure on the BOE to take severe action at its next meeting.

Furthermore, when the European Central Bank meets again at the end of the month, it is anticipated to boost its benchmark interest rates by an additional 75 basis points after the previous rate hikes of 125 bps.

For the Fed, the market is pricing in a terminal rate as high as 4.90% in the spring and is confident that the Fed will raise rates by 75 basis points on November 2.

Later today, Canadian inflation data are due, possibly causing volatility in the USDCAD pair, while the focus will also be on the US building permits and housing starts data.