Forexlive Americas FX news wrap 23 Oct: Dollar moves higher but Beige Book tempers gains

• Beige Book cools the US dollar bid
• BOJ Governor Ueda: Underlying inflation has been rising slowly
• BOE’s Bailey: Disinflation has taken place faster than expected in the UK and elsewhere
• CIBC: It would take a major turn of events to stop another 50 bps Bank of Canda cut in Dec
• ECB’s Panetta: We have clearly seen an improvement in the inflation outlook
• Ranking of the districts and a look at the “number” qualifiers in Beige Book for October
• Beige Book shows economy flatening, employment moderated further
• Inflation, Interest Rates, and the US Dollar: The Trump Effect
• US treasury auctions off $13 billion of 20 year bonds at a high yield of 4.590%
• Apple falls on bearish iPhone sales commentary. Apple shares down -2.35%
• ECBs Escriva: Risk to inflation remains balanced
• Bitcoin turns lower after failing to break $70,000
• European equity close: Third consecutive day of declines this week
• ECBs Villeroy: Sees full optionality for December rate meeting
• Macklem press conference: We will take our next decision in December
• ECB’s Nagel: He is convinced ECB is more or less on track to meet 2% inflation target
• EIA weekly crude oil inventories +5474K vs +270K expected
• ECB Lagarde: She is satisfied with inflation progress
• ECBs Lane: High conviction that disinflation is on track
• US September existing home sales 3.84M vs 3.86M expected
• The full statement from the Bank of Canada interest rate decision
• Macklem statement: We anticipate cutting our policy rate further
• Bank of Canada rate decision: 50 basis point cut, as expected
• Kickstart the FX trading day for Oct 23 w/a technical look at the EURUSD, USDJPY & GBPUSD
• ForexLive European FX news wrap: USD/JPY ramps higher, BOC up next

The Bank of Canada (BOC) reduced its policy rate by 50 basis points to 3.75% and continues its policy of balance sheet normalization.

• The global economy is expected to expand at a rate of about 3% over the next two years.
  • Stronger growth in the U.S.
  • Subdued growth in China.
  • Modest recovery expected in the euro area.
• Inflation in advanced economies has decreased and is close to central bank targets.
• In Canada:
  • The economy grew around 2% in the first half of the year.
  • Projected to grow 1.75% in the second half.
  • Consumption has grown but is declining on a per-person basis.
  • The labor market remains soft with a 6.5% unemployment rate in September, especially impacting young people and newcomers.
  • Wage growth remains elevated relative to productivity, contributing to excess supply in the economy.
• GDP growth forecast:
  • 1.2% in 2024.
  • 2.1% in 2025.
  • 2.3% in 2026.
  • Growth driven by increased consumer spending, residential investment, and business investment.
• Inflation has declined to 1.6% in September, with easing shelter costs and lower gasoline prices.
• Core inflation is now below 2.5%.
• Inflation expectations have normalized, and the BOC expects inflation to remain close to the 2% target.

BOC Governor Tiff Macklem emphasized that core inflation is easing as expected and that there was a “clear consensus” on the decision to cut rates by 50 basis points. He noted that further rate cuts are likely if the economy evolves as expected, with a focus on inflation and growth data moving forward.

Macklem reassured Canadians that inflation is close to target and that they should not be concerned about rising living costs. He also mentioned that the BOC is focused on ensuring a smooth economic transition, or “sticking the landing”, as they navigate the post-inflationary environment. However, no immediate commitment to more aggressive rate cuts was made, with future decisions being data-dependent

September U.S. existing home sales fell to an annualized pace of 3.84 million, slightly below the expected 3.86 million.

• This marks the lowest level since October 2010.
• Sales were down 1.0% month-over-month, an improvement from the revised -2.0% last month.
• Sales were down 3.5% year-over-year, slightly better than last month’s -4.2%.
• Inventory levels rose to 1.39 million homes, a 4.3-month supply, up from 4.2 months last month and 3.4 months a year ago.
• Inventories increased 1.5% for the month.
• The median home price reached $404,500, a 3% increase year-over-year, marking the 15th consecutive month of price growth.
• The 30-year mortgage rate averaged 6.44% as of October 17, up from 6.32% a week earlier, but down from 7.63% a year ago.

NAR Chief Economist Lawrence Yun said about the report:

“Home sales have been essentially stuck at around a four-million-unit pace for the past 12 months, but factors usually associated with higher home sales are developing, There are more inventory choices for consumers, lower mortgage rates than a year ago, and continued job additions to the economy. Perhaps some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election.”

Later in the day, the Federal Reserve released its latest Beige Book, an anecdotal look at the US economy from the perspective of the Federal Reserve districts.

The Beige Book report helped to cool the US dollars move to the upside as it reinforced expectations of further rate cuts. Several Fed officials, including Chair Powell, referenced the Beige Book as a key reason for the 50 bps rate cut in September, citing anecdotal data as often better for capturing economic turning points than lagging indicators like employment.

The latest report painted a downbeat picture, with “little changed” economic activity across nearly all districts, contrasting with August’s report, which showed growth in three districts. Employment growth also moderated, with hiring now focused on replacement rather than growth. These comments strengthened market expectations of another 25 bps cut in November, with a high likelihood of another in December, causing a broad decline in the USDIn other central bank commentary, there was a gaggle of ECB officials speaking today. Most spoke positively about the inflation trends.

ECB’s Lane:

• High conviction that disinflation is on track.
• Some recent data raise questions about growth projections.
• A good recovery in the economy is still plausible.
• No dramatic weakening of the economy.

ECB’s Lagarde:

• She is satisfied with inflation progress.
• Emphasized the need for the ECB to be cautious.

ECB’s Nagel:

• Convinced that the ECB is on track to meet the 2% inflation target.

ECB’s Villeroy:

• Sees full optionality for the December rate meeting.
• Does not believe the ECB is behind the curve.

ECB’s Escriva:

• Believes that the risk to inflation remains balanced.

ECB’s Panetta:

• Inflation outlook has clearly improved.
• Acknowledged that the economy is weakening.
• The environment is conducive to further cuts.
• Suggests that the ECB might not stop at the neutral rate.

• ECB’s Holzmann:

  • Soft landing for Europe is guaranteed.
  • Recent data has not changed much.
  • Market pricing of cuts is likely too aggressive.
  • Some colleagues may push for a big December cut.
  • Current data doesn’t justify a 50 bps cut in December.

• ECB’s Centeno:

  • Downside risks to growth are accumulating.
  • 50 bps cut is on the table, but data will determine the size of the cut.
  • There are early signs of concern regarding the labor market.
  • Downside risks dominate growth and inflation outlooks.

• ECB’s Knot:

  • Confident that inflation will hit 2% in 2025.
  • Ready to ease policy if the base case holds.
  • A recovery in consumption is logical but will take longer.
  • No risk of a structural undershoot of the 2% inflation goal.
  • A large economic deterioration is needed for bigger cuts.
  • Expects the biggest slowdown in wages is still ahead.
  • Warned that trade fragmentation will hurt both the U.S. and Europe.

In the forex market, the US dollar moved higher against all the major currencies with the greenback’s gains versus the JPY the biggest mover:

• JPY +1.05%
• AUD, +0.76%
• NZD, +0.63%
• GBP, +0.42%
• CAD., +0.16%
• EUR, +0.12%
• CHF, +0.10%

Yields in the US continued there move to the upside:

• 2-year yield 4.082%, +4.5 basis points
• 5-year yield 4.054%, +5.0 basis points
• 10 year 4.239%, +3.4 basis points
• 30 year 4.514%, +2.0 basis points

The US treasury auctioned off $13 billion of 20 year notes at a high yield of 4.59%. The yield is currently at 4.592% up 3.3 basis points on that

US stocks had a rough day today but is trading off of heads low levels.

• Dow industrial average -409.94 points or -0.96% at 42514.95. At session lows, the index was down -631.72.
• S&P index fell -53.78 points or -0.92% at 5797.42. At session lows the index was down -88.79 points
• NASDAQ index -296.47 points or -1.60% at 18276.65. At session low as the index was down -426.52 points.. The index had its worst day since September 6

Crude oil futures are trading down -$0.72 or -1.0% at $71.02. Gold fell – $34.05 or -1.24% at $2714.75. No new record high today in gold. Bitcoin fell close to thousand dollars to $66,379.

This article was written by Greg Michalowski at www.forexlive.com.