EUR weakens on the back of dovish comments from ECB’s Nowotny while USD is supported by higher core CPI data
FX markets have been dominated by two notable events today, with EUR and USD taking centre stage. European hours kicked off with more dovish than expected comments from ECB’s Nowotny, who suggested core inflation is ‘clearly missing` the ECB’s target and that additional sets of instruments are necessary, including structural tools. Nowotny’s comments took on additional significance given that last month he suggested any expansion of the QE programme would require a thorough examination, with his latest comments thereby indicating a change of view. In the immediate aftermath of Nowotny’s comments, EUR weakened significantly to see USD retrace some of its post retail sales and PPI inspired losses, while significant strength was also seen in safe haven currencies JPY and CHF.
Today also saw a number of US data points, with the latest CPI readings garnering particular focus. While the headline figure printed in line with expectations (M/M -0.20% vs. Exp. -0.20%), the ex food and energy numbers came out higher than expected (M/M 0.20% vs. Exp. 0.10%), which led to further strength in the USD, seeing the USD-index end the European session higher by around 0.5%.
Elsewhere in FX markets, today saw Australian Employment Change print lower than expected (M/M -5.1K vs. Exp. 9.6K) seeing weakness go through AUD/USD. However, this was not sustained, while NZD/USD continued its recent trend higher to reach 3 and a half month highs. Finally of note, Fitch lowered their rating of Brazil to "BBB-" from "BBB" with a negative outlook, seeing immediate weakness go through BRL.
Looking ahead, tomorrow sees the final release of Eurozone September CPI, US industrial production, manufacturing production, JOLTS job openings and the preliminary reading of University of Michigan sentiment as well as comments from ECB’s Jazbec and Couere and BoE’s Forbes.