FX markets were relatively quiet throughout the first half of the European session with price action being subdued by the looming FOMC rate decision at 1800GMT, with the USD index settling in a steady downward trend throughout. CME Fed watch are pricing in just a 5% chance of a hike this time round, as such precedent will be given to the accompanying statement, with participants looking for signs as to whether December is a ‘live’ meeting or not. This is of particular importance as Chair Yellen has said that expectations are for a hike this year and December is the final meeting of 2015.
With little in terms of tier 1 data out of Europe, notable movers early on were dictated by events overnight, most notable of which was Australian CPI, which missed expectations. The RBA’s preferred trimmed mean reading (2.10% vs. 2.40%) printing at a 3-yr low. As a result, there have been increasing calls for the RBA to cut rates, especially in the context of several Australian banks following Westpac’s lead and raising mortgage rates. These factors combined to see AUD weaken further, but found a range thereafter and price action remained relatively muted throughout the rest of the European session.
In the second half of the session, volatile price action was observed in oil with DoE’s showing a lower build than expected (3376K vs. Exp. 3750K Prev. 8028K); at around half as great as last week’s reading; as a result, the price of oil climbed after trading near 2 month lows in yesterday’s session. As the price of oil rose, strength was seen in commodity currencies, with the notable exception of AUD, which was held range bound by the aforementioned CPI readings. Pairs such as USD/CAD and USD/RUB fell substantially, aided by the weakness in USD, as a result of the looming FOMC rate decision.
Elsewhere, short term interest rate differential flows, with Gilts heavily underperforming Bunds, continued to support GBP related flows and in part offset month-end buying of EUR/GBP, with GBP/USD back in positive territory towards the end of the session.
Looking ahead, tomorrow sees the release of: German national CPI, regional CPI and employment data, Japanese CPI and comments from ECB's Constancio and Fed's Lockhart.