Risk sentiment was weighed down by weak equity markets on Tuesday. The dampened mood spilled over to currency markets, giving the yen a safe haven bid. Meanwhile, investors remain nervous ahead of the Fed (and other central bank meetings) this week. Geopolitical risk was also in focus as US-China relations were tested after a US warship sailed through disputed waters in the South China Sea.
The main economic release during the European session was UK third quarter GDP data. The report showed the British economy slowed during the months of July to September, recording growth of 0.5% quarter-on-quarter which was slightly below the forecast of 0.6% growth and lower than the previous quarter’s 0.7% growth. The softer data could push market expectations for a Bank of England rate hike further out.
The pound reacted negatively to the weaker-than-expected data, dropping to 1.5306 dollars immediately after the release from around 1.5345 dollars prior to the data before recovering quickly to climb back up to 1.5352. Sterling then resumed its decline back down to 1.5287.
The euro had a quiet day in the absence of Eurozone data and consolidated around the mid-1.10 range.
A raft of data came out of the US today but focus remained on the FOMC policy announcement on Wednesday. Durable goods orders fell 1.2% in September, following a revised 3% drop in August. Other data showed the S&P/Case-Shiller Home Price Index rose again in August, up 5.1% year-on-year, in line with expectations and a tick up from a prior 5.0%, showing strength in the US housing market.
US consumer confidence from the Conference Board disappointed and fell to its lowest levels in four months. The index declined to 97.60 from a revised 102.6 reading in September. Economists had expected a rise of 102.9.
The dollar was under pressure against the yen due to the mostly disappointing US data, touching lows of 120.15 yen. The dollar/yen pair had opened in Asia at 120.98 and fell throughout the day, mostly on positioning ahead of Wednesday’s FOMC. The possibility that the Fed will raise interest rates at this meeting is very slim especially after today’s batch of data.