Market Drivers – US Session 21/10/2022

Mohamed Abdelhamid 22 October, 2022 4:09 am Forex Market, Market Update

Amid hopes that Fed could be less hawkish, as mentioned by Fed officials debating to slow the pace of rate increases following November’s meeting. At the time of writing, WTI is trading at $85.05 per barrel, up by 0.19%.

The Euro recovered to the 0.9800 level as Fed officials signaled less hawkish policy stance in subsequent rate hikes. The Fed is setting the scene for shrinking the size of future interest rate hikes, and this tune rapidly impacted the US Dollar during the US session.

Falling US bond yields also destabilized the dollar, and on the other hand, boosted the EUR. USD/CHF repeats daily highs reached in the US session around 1.0147 but trimmed its gains, falling below 1.0000 towards its daily low at 0.9961.

Gold price advances almost 1% as the market speculations accelerated on FOMC’s intention. A WSJ article noted that FOMC members could be split about December’s rate hike, as November increase to the Fed funds rate (FFR) 75 bps, is certain. The precious metal is trading at $1651.36 per ounce.

US shares surged on Friday after a news report, by WSJ, said the US Fed will likely debate on a smaller interest rate hike in December, raising hopes the central bank may be ready to adopt a less hawkish policy stance.

Economic Data

Euro zone consumer confidence touched record low in October, highlighting the continued risk of a recession this winter as households struggle with surging inflation and an acute cost-of-living crisis. The monthly reading from the European Commission inched up to -27.6 from -28.8 in September, according to preliminary data released on Friday.

The number of total active drilling rigs in the United States rose by 2 this week, according to new data from Baker Hughes published on Friday. The total rig count rose to 771 this week—229 rigs higher than the rig count this time in 2021. Drilling rigs in the United States rose by 2 this week, to 612. Gas rigs stayed the same at 157. Miscellaneous rigs also stayed the same at 2.

Other Developments

The US dollar fell after a volatile session that initially witnessed the EUR/USD hitting its daily lows of around 0.9704.

In the US session, the US Dollar was hit by news report by WSJ saying that Fed policymakers will discuss the size of subsequent interest rate increases to the Federal funds rate at the November meeting.

Later, San Francisco Fed President Mary Daly acknowledged what the WSJ report indicated, commenting that even though rate hikes are needed and support a 75 bps increase for November, she added that it would not be 75 bps increases “forever.”

Echoing her comments, Fed’s James Bullard, a voter in the FOMC in 2022, noted that the Fed had moved rates to a “higher level of the policy rate” and added that once a “right level” reached, it might need some squeezes based on incoming data.

In the middle of the North American session, the Bank of Japan (BoJ), and the Japanese Ministry of Finance (MoF) intervened in the FX market, selling US Dollars and propelling the yen, which increased volatility in the markets and undermined the greenback. The EURUSD pair dived toward its daily lows before rallying sharply toward the daily high at 0.9869.

Next week, the economic calendar in Europe will focus on France and German Flash Services PMI, the German IFO Business Climate, ECB Monetary Policy decision, with expectations of a 75 bps rate hike.

The US economic docket will feature Flash Manufacturing PMIs, the CB Consumer Confidence, the Gross Domestic Product (GDP) for Q3, and the Federal’s Reserve favourite gauge of inflation, the core PCE.

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