Markets brace for increased volatility on PMIs, FOMC Minutes

Markets stay relatively quiet early Wednesday as investors stay on the sidelines while waiting for key macroeconomic data releases. The US Dollar Index, which snapped a three-day winning streak on Tuesday, moves sideways near 107.00 while the 10-year US Treasury bond yield and US stock index futures trade flat on the day. S&P Global will publish the preliminary November Manufacturing and Services PMI surveys for Germany, the Eurozone, the UK and the United States (US). The US economic docket will also feature Durable Goods Orders and New Home Sales data for October, weekly Initial Jobless Claims and the University of Michigan’s Consumer Sentiment Survey. Finally, the US Federal Reserve will publish the minutes of the October policy meeting ahead of the Thanksgiving holiday.

During the Asian trading hours, the Reserve Bank of New Zealand (RBNZ) announced that it hiked its policy rate by 75 basis points (bps) to 4.25% as expected. In its policy statement, the RBNZ said that it was forecasting the policy rate to peak at 5.5% next year and it was expecting the economy to tip into recession in mid-2023. While speaking at a press conference, RBNZ Governor Adrian Orr noted that policymakers spent more time considering whether they should raise the policy rate by 75 or 100 bps rather than 50 bps. NZD/USD climbed toward 0.6200 with the initial reaction to the rate decision but retreated toward 0.6150 into the European morning.

Meanwhile, the CME Group’s FedWatch Tool shows that markets are currently pricing in a 75% probability of the US Federal Reserve (Fed) opting for a smaller, 50 basis points, rate increase in December. In October’s policy statement, the Fed said that policymakers will take the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation into account when determining the pace of rate increases.

EUR/USD gained nearly 50 pips on Tuesday and closed above 1.0300. The pair continues to edge higher in the early European morning. S&P Global PMI surveys are expected to show that the business activity in Germany’s and the Eurozone’s manufacturing and services sectors continued to contract in early November.

GBP/USD took advantage of the US Dollar’s modest weakness on Tuesday and climbed toward the upper limit of its weekly range near 1.1900. The pair trades in a relatively tight range near that level early Wednesday.

USD/JPY retreated from the 10-day high it touched above 142.00 earlier in the week and ended up losing 100 pips on Tuesday. The pair seems to have gone into a consolidation phase above 141.00 mid-week.

Gold price struggled to gather bullish momentum on Tuesday and stretched lower toward $1,730 in the Asian session on Wednesday before staging a rebound. Although the US T-bond yields hold steady, XAU/USD is having a tough time attracting bulls amid growing concerns over the demand outlook with China starting to tighten coronavirus restrictions.

Following the sharp decline witnessed earlier in the week, Bitcoin gained nearly 3% on Tuesday and extended its recovery toward $16,500 early Wednesday. Similarly, Ethereum gained traction and was last seen trading above $1,150, where it was up 2% on the day.

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