Forexlive Americas FX news wrap: Dollar softer as the market digests the Fed decision

• US initial jobless claims 219K vs 230K estimate
• September Philly Fed +1.7 vs -1.0 expected
• US August existing home sales 3.86m vs 3.90m expected
• ECB’s Schnabel: Inflation outlook remains challenging, policy vigilance needed
• Canadian consumer spending struggled in August – RBC tracker
• BOE leaves bank rate unchanged at 5.00%, as expected
• BOE’s Bailey: Optimisitic UK rates will fall further, need more evidence
• Volkswagen may cut 30,000-100,000 jobs
• Hezbollah chief: Israel violated red lines with pager attack
• BofA fund manager survey: Investors best described as ‘nervous bulls’
• South African central bank lowers rates for the first time since 2020
• BOC’s Vincent outline’s the central bank’s data-gathering process
• US Q2 current account deficit -266.8B vs -260.0B expected

Markets:

• WTI up $1.10 to $72.01
• S&P 500 up 1.7%, Nasdaq up 2.6%
• Gold up $30 to $2589
• US 10-year yields up 3.2 bps to 3.72%
• AUD leads, JPY lags

The Fed dust settled and it was a big change from 24 hours ago, when there was some angst about the somewhat surprising 50 basis point cut.

The market settled into a strongly risk-on mode and equities opened strong and stayed strong. The FX market wasn’t quite as straightforward as the Fed’s dovish stance has the long-end of the bond market less concerned about a recession and more concerned about a higher terminal rate or higher inflation.

That led to a bumpy path for the US dollar that peaked after better data on initial jobless claims and the Philly Fed.That lifted USD/JPY to a US high of 143.79 but it couldn’t break the Asian high, which was a dozen pips higher. In turn, the dollar began to sag. Later, Treasury yields came back down and that put further pressure on teh pair, which finished closer to the European lows but still up 30 pips on the day.

Elsewhere, the US dollar also rallied against the pound and euro after the claims data but couldn’t hold the move. The pound was also navigating the BOE decision, which was surprisingly hawkish. The pound spiked to a session high on the announcement but wasn’t able to press the issue and sagged back to 1.3225 before USD selling boosted it to 1.3280 late. That pair will be an interesting one to watch tomorrow as the dust settles.

Commodity currencies also followed the back-and-forth move in the dollar with USD/CAD climbing 50 pips and then giving it back as the risk trade held firm. The loonie also touched a 13-day high, according to this esteemed currency analyst.

This article was written by Adam Button at www.forexlive.com.