EUR/USD hovered up and down yesterday, but USD strength finally prevailed. After some caution in Asia, the risk rally continued as officials confirmed the US and China intended rolling back tariffs in case a partial agreement. EUR/USD initially gained on the optimism, but the rebound stalled soon. The EC further downgrading its EMU outlook was a potential euro negative. US and European yields both rallied further, but the short-term interest rate differential still widened in favour of the dollar. EUR/USD dropped from the 1.1090 area to close at 1.1050. USD/JPY rebounded north of 109 to close at 109.28.

This morning, the risk rally looks like running into resistance after substantial gains earlier this week. The rise in global yields at least takes a pause and so does the dollar (trade-weighted dollar DXY at 98.12). USD/JPY stabilizes in the 109.25 area. The yen hardly reacted to PM Abe calling for fiscal stimulus. The RBA in the quarterly policy statement sounded quite dovish on wage growth and inflation over the policy horizon. The Aussie dollar dropped back below the AUD/USD 0.69 level.

There are only second tier data in Europe today. In the US, the University of Michigan consumer confidence is expected little changed (95.5) after a decent rebound over the previous two months. Any impact on the dollar should be limited. After the recent rally, quite some good news should be discounted, also in the interest rate markets. At least this week, the dollar profited from positive trade headlines and the rise in yields. This USD rebound might slow going into the weekend. This especially applies to USD/JPY. At same time, recent EUR/USD price action was a bit disappointing. The October rebound has stalled, and the pair dropped below the 1.1073 neckline, making the picture gain more neutral short term. The 1.10 area markets the next ST support.

The focus for sterling trading turned temporarily from the elections/Brexit to the BoE monetary policy assessment yesterday. The BoE still indicates that rates will might have to be raised slightly over the policy horizon, but two MPC members voted for a rate cut. Sterling spiked briefly lower, but the move was soon reversed. EUR/GBP closed marginally stronger at 0.8629. For today, we expect more technical trading in the lower 0.86 area as the election campaign continues.

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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