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Overview
Price action continued to be dominated by risk averse flows, as the uncertainty over the economic outlook for China and the potential implications for monetary policies of the Fed and other central banks remained at the forefront of investors’ minds. As a result, the in vogue energy and base metals markets remained depressed, in turn weighing on commodity sensitive currencies such as AUD, CAD and RUB.
Elsewhere, various central bankers did their best to keep the negative sentiment stemming out of China from spilling over and impacting on the outlook for respective economies. Specifically, Fed's Fischer said that the first rate-hike would come when there is “some further improvement in the labour market” while ‘there is good reason to believe inflation will move higher and forces holding down inflation will dissipate further’. While, BoE Governor Carney pointed out what while a slowdown in China’s economy could supress inflation, at this moment in time does not alter the central bank’s position on when it will hike rates.
Despite the volatility in early European trade, EUR/USD headed for a positive close, supported by slightly firmer than expected EU CPI data, as well as better bid USTs on the safe-haven related flows, which in turn weighed on the USD index.
Looking elsewhere, despite the risk averse sentiment, EUR/CHF traded higher, in part driven by comments by SNB's Jordan who stated that the CHF is highly overvalued at present levels and interest rates will remain negative for a while.
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