The yen was the best performing currency due to risk off sentiment today. Investors are being cautious ahead of key risk events this week, which include US nonfarm payrolls and Chinese manufacturing PMI. The dollar started off the European session strong against the euro and the pound but then weakened across the board in early US session trading on comments by New York Fed President William Dudley.
The euro traded below the key 1.1200 level and gradually weakened against the dollar to a low of 1.1145. Further losses were halted by a weakening dollar. There were no Eurozone data releases today and there was limited response to Catalonia’s regional election results which were favourable for the pro-independence parties. The single currency will be vulnerable to Wednesday’s release of advance CPI data for September. Headline inflation is forecast to fall to 0.0% y/y from a previous 0.1% y/y, which would be negative for the euro.
Sterling’s rise above 1.5200 was brief. After hitting a session high of 1.5240 it fell back down to 1.5156, close to a four-month low. This week’s main risk for the pound lies with a speech by Bank of England Governor Mark Carney on Tuesday. This would be interesting to watch for any clues on the BoE’s policy plans, especially after last week’s rather dovish tone from BoE Chief Economist Haldane, who suggested that rate cuts could be required.
The only data releases out today were from the US, which included personal income and spending. Personal income in August rose 0.3%, missing the estimated figure of 0.4% but personal spending rose 0.4%, beating a 0.3% forecast. The dollar rose on this data as consumption makes up a large part of the US economy. Against the yen, the greenback rose to a high of 120.33 from 120.07 but soon fell back down to 119.81 as US equity markets opened lower and then continued to fall on expectations of a rate hike this year, following New York Fed President William Dudley’s comments.
Dudley spoke in an interview today with the Wall Street Journal and said the Fed remains on track for a likely rate hike this year. He even suggested a move in October’s FOMC meeting could be possible depending on the data. He remains upbeat about the health of the US economy. Other Fed officials will be speaking this week, including Fed Chair Janet Yellen on Wednesday. Yellen’s comments last week indicated that rate hikes before year end were still very much on the agenda. Meanwhile, Friday’s US jobs data will also be important to watch.