The Euro held steady on Tuesday as investors awaited eurozone inflation and unemployment figures, while the Dollar gained against the Yen following strong demand at a Japanese government debt auction, which helped calm nerves after Monday’s global bond selloff.
The Euro was steady at 1.1606 ahead of the inflation release, with traders largely anticipating little impact on European Central Bank rate cut expectations. Meanwhile, negotiations aimed at ending the war in Ukraine continued.
Today’s CPI release is unlikely to significantly influence ECB rate expectations, say analysts. If anything, there’s a slight downside risk for the Euro, but overall, a neutral impact on the currency is forecast.
Elsewhere, the Dollar climbed 0.37% against the Yen to 156.01, rebounding from a two-week low on Monday. The move followed a sale of 10-year Japanese government bonds that attracted the strongest demand since September, boosting super-long-dated securities after yields had reached new highs earlier in the day.
Furthermore, on Monday, stocks, bonds, cryptocurrencies, and the Dollar all fell after Bank of Japan Governor Kazuo Ueda indicated the central bank would weigh the “pros and cons” of a rate hike at its next policy meeting.
This pushed Japanese two-year yields above 1% for the first time since 2008, triggering ripple effects across global bond markets.
Adding to market jitters, US manufacturing data came in weaker than expected, increasing pressure on the Federal Reserve to cut interest rates this month.
Fed funds futures now price in an 87% probability of a 25-basis-point cut at the December 10 meeting, up from a 63% chance a month ago, according to CME Group’s FedWatch tool.
The Dollar index held steady at 99.48, following a drop to a more than two-week low on Monday.
In addition, Sterling remained flat at $1.3215, after reaching a one-month high on Monday.
On Tuesday, the Bank of England lowered its estimate of the capital banks are required to hold, aiming to encourage lending and stimulate the economy. This marks the first reduction in bank capital requirements since the financial crisis.