TALKING POINTS – US DOLLAR, YEN, FOMC, ITALY, SWEDEN, EURO
- US Dollar, Yen rise as APAC stocks follow Wall St lower after FOMC
- Euro to look past German CPI to focus on politics in Italy and Sweden
- Aussie, NZ Dollars may suffer outsized losses in broadly risk-off trade
The US Dollar traded broadly higher in Asia Pacific trade as regional investors took their turn to price in the outcome of the FOMC rate decision. The greenback rose despite a broadly status-quo outcome in a move that probably reflected a shift back to focus on the widening policy divergence between the Fed and its G10 counterparts, as expected.
US shares fell after the announcement, which probably spoke to worries about the impact of rising borrowing costs on risky assets buoyed by close to decade of ultra-loose monetary settings in the wake of the Great Recession. APAC bourses picked up on the negative lead, leading the sentiment-linked Australian and New Zealand Dollars downward while the anti-risk Japanese Yen traded broadly higher.
EURO MAY OVERLOOK GERMAN CPI, FOCUS ON ITALY AND SWEDEN
German CPI data headlines the economic calendar in European trading hours. The headline on-year inflation rate is expected to print at 2.0 percent in September, unchanged from the prior month. The outcome seems unlikely to inspire a meaningful response from the Euro considering its limited implications for near-term ECB monetary policy, which seems to be effectively on autopilot at least through year-end.
Turmoil in Italy may weigh on the single currency however as the newly-minted coalition government prepares to unveil a budget. Campaign promises made by the anti-establishment League and Five Star Movement (M5S) parties at the heart of the administration pave the way for a proposal at odds with Eurozone fiscal rules, setting up a conflict with Brussels.
The prospect of instability in the currency bloc’s third-largest economy may be compounded by political jitters in Sweden, where talks about forming a new government are due to begin following September’s inconclusive general election. Here too, eurosceptic populists may emerge as kingmakers. All this coupled with an already risk-off tone seems likely to keep the Yen and US Dollar on the offensive.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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