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EUR Dented by PMIs, JPY Eyes Further BoJ Reports

FOREX
  • The Greenback is mixed, with EUR the underperformer on the back of a poor set of PMI numbers for October - and Germany in particular. Services and composite PMIs came in below forecast, putting the economy on a particularly soft footing headed into Q4. EUR/USD reversed off recovery highs of 1.0694, but support is seen scant into 1.0616 and 1.0571.
  • AUD/USD looked through a speech from RBA's Bullock, despite a step-up in rhetoric on inflation. Nonetheless, this messaging resulted in only a marginal 5 pip move in AUD/USD as the base message on policy ("Our focus remains on bringing inflation back to target within a reasonable timeframe, while keeping employment growing") was broadly unchanged.
  • Similarly, inflation is expected to soften further in the coming quarter, leaving markets to only partially price one further 25bps hike this cycle (peak rates priced for the May'24 meeting). Next RBA decision due on November 7th.
  • USD/JPY trades lower, but recovered around 15-20 pips off the lows, on the back of a Bloomberg report citing sources in reporting that the BoJ are said to be waiting until the last minute, watching global yield curves in any decision to tweak yield curve control due to concerns over US yields. The report adds that the BoJ see little need to change forward guidance at this stage. Speculation of a potential tweak at the upcoming meeting on Oct31 has ramped up in recent days/weeks, given expectations for inflation projection alterations and broader market moves in wider core global FI markets.
  • Preliminary October S&P PMI data comes just ahead of the Richmond Fed manufacturing index, marking the only tier one releases left during the Tuesday session. Central bank speak is unsurprisingly light with both the ECB and the FOMC inside their pre-decision media blackout periods. This keeps focus on the machinations across the US yield curve, with the un-steepening of the curve since the open on Monday helped partially stabilise markets across equities and bonds this week.
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