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USD Hampered by Further Pullback in US Yields

FOREX
  • Markets trade with a risk-off feel, as prices remain sensitive around Israeli headlines and any potential for escalation. US Treasury futures rallied on the back of headlines confirming an exchange of fire between Israel and Lebanon, with US 10y yields coming under pressure and undermining the greenback. The subsequent pullback in the USD saw more weight go through on comments from Fed's Bowman, who moderated her language on rates, stating that the Fed "may need" to raise rates further, potentially becoming less prescriptive on the need for further tightening.
  • The moves in the USD helped nudge EUR/USD (briefly) to a new daily high at 1.0628. This further narrowed the gap with next notable resistance of 1.0674 - the Sep 21 high. More broadly, EUR/USD is beginning to show some signs of bottoming out - the pair closed above the 20-day EMA yesterday for the first time since late August - another possible signal of stabilisation in the price.
  • Haven flows are evident in the strength in CHF, which is the best performing currency in G10 at the NY crossover. Fittingly, risk proxy currencies including AUD and NZD are performing more poorly.
  • US PPI data takes focus Wednesday, with the final demand headline expected to slow to 0.3% on the month, 1.6% on a Y/Y basis. Ex food and energy data is expected broadly unchanged. The Fed minutes for their September rate decision also cross, with markets looking to gauge the FOMC's appetite for further hikes later this year.
  • Outside of data, speeches are scheduled from ECB's de Cos & Villeroy as well as Fed's Waller, Bostic and Collins.
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