Yen remains the strongest currency this week, with support from sharp decline in treasury yield. Two year yield suffered the largest decline since September 2013 while 10 year yield also broke below 3% for the first time since May 2003. Markets are concerned that slowdown in global economy, with risk of recession even in Germany, could delay Fed's rate hike. Markets are pricing in 45% for Fed's first rate hike by September 2015, down from nearly 75% at the beginning of the month. Technically, CAD/JPY is the weakest one this week as fresh selloff was seen in the Canadian dollar, also following the dive in crude oil. GBP/JPY was the next weakest one after yesterday's weak inflation data.
San Francisco Fed president John Williams downplayed global risk but his comments were ignored by the market. He maintained that he's comfortable with rate hike about nine months from now, unless that inflation isn't moving above 1.5% or there's no improvement in wages. Meanwhile, regarding the sharp fall in treasury yields, he said that "the markets are pricing in a lot of other things that might happen and a lot of those are negative." Regarding situation in Eurozone, William said the key is the next steps ECB might take, including timing and aggressiveness, and that "worries" him "a little bit".
On the data front, Australia Westpac consumer confidence rose 0.9% in October. China CPI dropped more than expected to 1.6% yoy in September while PPI dropped to -1.8% yoy. UK employment data will be the main focus in European session today. Jobless claims are expected to drop -35.0k in September while unemployment rate is expected to drop to 6.1% in August. Sterling showed much broad based weakness this week and downside surprise today could trigger another round of selloff. Also to be released in European session include German CPI final and Swiss ZEW expectations.
From US, retail sales is expected to drop -0.1% in September while ex-auto sales is expected to rise 0.2%. PPI is expected to be unchanged at 1.8% yoy while PPI Core is expected to drop to 1.7% yoy. Business inventories and Fed's Beige Book economic report will also be released. Focus will be on development in stocks and yields which could drag down USD/JPY.