U.S Dollar Weighed Down By Dovish Fed Governors

Yesterday’s mostly counter-trend moves ended abruptly. A second governor of the Federal Reserve voiced opposition to the intimation by Yellen and Fischer, and several regional presidents that the a rate hike is still appropriate this year. This helped renew the downside pressure on the dollar.  It is lower against all the majors and most emerging market currencies today.

Global equities had enjoyed gains since the start of the month. Advancing streaks were snapped yesterday, and follow through selling is being seen today. Equity market weakness and lower bond yields are helping lift the yen. The dollar is trading at its lowest level against the yen since September 29’s JPY119.25 low. Of note, the Nikkei gapped lower and closed below 18k.  It completed a 38.2% retracement of the rally from late-September.  The 50% retracement is found near 17670.  An old gap (October 5 higher opening) extends to 17775.   

The Japanese government lowered its assessment of the economy, including industrial production.  Although it says the recovery is continuing, it recognized that it was experiencing “weak pockets.” Still, the assessment fanned speculation that pressure was mounting on the BOJ to ease policy further when it meets at the end of the month. 

Speculation is also increasing that China will ease further too. The focus today was on inflation or the lack thereof.  Specifically, September CPI eased to 1.6%.  The Bloomberg consensus was for a 1.8% pace after 2.0% in August.  Food prices moderated (2.7% from 3.7%) and non-food prices edged lower (1.0% from 1.1%).  Producer prices fell 5.9% year-over-year, in line with expectations, and continuing the streak that is approaching four years in duration.

Separately, we note that China continues to make reforms that may enhance its chances of joining the SDR. Reports suggest China is planning on extending the hours of its onshore yuan trading, perhaps by the end of next month. It would allow an overlap with Europe by extending the Shanghai session to 11:30 pm, seven hours later than current hours.