NZD gives up ground amid stubbornly hawkish Fed commentary

Key Movers

The US dollar clawed back through trade on Thursday as a host of Fed speakers sought to water down market expectations for a tempering in the pace of interest rate hikes. The BB DXY index closed half a percent higher on the day as Fed officials extoled the virtues of higher interest rates amid sustained inflation and a robust labour market. Having made modest inroads against most major counterparts, the dollar gave back gains amid weaker than anticipated domestic manufacturing data. The Philly fed survey fell sharply, suggesting the manufacturing sector is nearer recession than other sectors of the economy, while housing starts and building permits both retreated in October.

In other news the UK Chancellor proffered the latest budget update. A £55billion package of tax increases and spending cuts highlighted what was an austere budget offering. While many of the austerity measures won’t be introduced until after the election in 2024, they offer little incentive to suggest fiscal spending will help revitalise a stagnant UK economy. The budget papers forecast a 1.4% contraction in GDP, while inflation is expected to remain elevated and above 7% through the next 12 months. With markets largely anticipating the dour budget offering, the GBP is little changed slipping below £1.19 but maintaining a relatively narrow handle. While there is scope for the GBP to find and extend short term gains the bleak economic outlook should continue to suppress larger moves, particularly against key major crosses.

Our attentions turn now to Japanese CPI data and commentary from ECB President Christine Lagarde. With little headline news flow on hand we are closely monitoring demand for risk as a key driver into the weekly close.