Market Drivers – US Session, October 25

Mohamed Abdelhamid 27 October, 2023 2:01 am Forex Market, Market Update

The US economy expanded at an annualized rate of 4.9% during the third quarter, surpassing market consensus of 4.2%. The report also revealed a lower-than-expected core Personal Consumption Expenditure (PCE) price index, which increased demand for bonds. Other data showed a rise in Continuing Jobless claims to 1.79 million, reaching the highest level in months.

Next week, the FOMC meeting will take place, and the market expectations suggest no change in interest rates. On Friday, the US will release the monthly core PCE, a key inflation measure. The report will also include personal spending and income data.

On Thursday, the Euro underperformed following the European Central Bank meeting. As anticipated, the central bank kept interest rates unchanged, marking the first time since June last year. Market participants interpreted the meeting as leaning towards a dovish stance, as the ECB signaled that it is unlikely to raise rates again.

EUR/USD hit a weekly low at 1.0521 but then rebounded, supported by a weaker US Dollar, rising towards 1.0565. The hiking cycle does not necessarily come to an end with today’s pause. However, it doesn’t appear that policymakers want to tighten even more. Compared to September, the ECB seemed a little more worried about the prospects for growth. Lagarde did not offer a clear response strategy for a possible fresh energy shock.

Weekly lows for GBP/USD were reached at 1.2068, but the pair later saw a rise towards 1.2130. In order to prevent further decline, the pair is still trading above the lows from October. Next week, the Bank of England is anticipated to continue its hold, most likely in a split vote.

USD/JPY is heading towards a daily close well above 150.00. The pair held that mark despite lower Treasury yields and risk-off sentiment. It appears that markets are challenging Japanese authorities. The Tokyo Consumer Price Index is due on Friday.

AUD/USD reached fresh year-to-date lows at 0.6269 but rose above the key 0.6280 area. The recovery is driven by the correction of the US Dollar, which shows limited conviction even as markets consider the possibility of another rate hike from the Reserve Bank of Australia (RBA) on November 7. The Producer Price Index is due on Friday.

USD/CAD continued to move higher, breaking above 1.3800. The pair posted its highest daily close in a year. The Canadian Dollar was the weakest performer among G10 currencies on Thursday.

Gold finished modestly higher around $1,985 as the yellow metal benefited only modestly from lower Treasury yields. Silver experienced volatile trading. XAG/USD ended hovering around $22.80 after briefly trading above $23.00 during European hours and bottoming below $22.50 after US data.

What to watch on Friday

During the Asian session, the Tokyo Consumer Price Index is due. The Australian Producer Price Index (PPI) will also be closely watched, especially after the strong CPI data reported on Wednesday.

Later in the day, market focus will shift to the US Core Personal Consumption Expenditure price index.

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