Will the USD make new highs, or have we seen a temporary bottom?

Today’s marketing moving announcements are Labor market data from the UK for august, and Housing data from the US. There are also some FED speeches later in the evening as well as the release of the Beige Book. Bank of Canada will also release its interest rate decision. Besides these news, the last presidential debate is also scheduled for tonight. Overnight, Chinese GDP data came in line with expectations so market reaction was muted. However, US data yesterday showed a softer inflation than anticipated which resulted in the USD weakening from its 7,5 month highs.

Currencies: The USD Index retreated from its highs earlier this week after US consumer prices showed that inflation did not rise as expected, indicating a slightly lower probability for a rate hike in December. Fed Fund Futures now price in a 65% probability instead of a 70% earlier this week for a rate hike in December. The most notable decline was against the Sterling, which was heavily oversold anyway. The pair climbed to over 1.23 from 1.2132 on Monday. EURUSD was steady around 1.0985 ahead of the ECB Interest rate decision and Press conference tomorrow. The central bank is widely expected to keep its policy unchanged with any decisions on the future of its asset purchase scheme expected to be delayed until December. Some traders however are nervous ECB President Mario Draghi could take a dovish stance to counter recent talk that the ECB is considering tapering its asset purchases. Against the JPY, the USD was trading at 103.73 from 104.15.

Stocks: Shares in Asia rose on Wednesday as Chinese economic data calmed regional growth concerns. The world’s second-biggest economy expanded 6.7% in the third quarter from a year earlier, matching growth in the previous quarter. Nikkei closed 0.2% while EU futures indicate also a mildly positive opening. Overnight, US stocks rose following another batch of better than expected corporate results. DJ closed 0.42% while the Nasdaq and SP500 closed at 0.90% and 0.62% respectively.

Oil and Gold: Gold prices closed on the upper side, but still within the $1250 – $1265 range. Gold is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-interest bearing assets such as the yellow metal. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases. Oil prices rose yesterday after the USD value dropped also as it makes fuel purchases cheaper for countries using other currencies, potentially increasing demand.

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