US FX WRAP: Dollar gains dented by dovish Fed Williams

DXY strengthened on Tuesday, supported by the rise in long-term yields, albeit gains faded in the afternoon on dovish Fed Williams remarks. The Vice Chair, who has historically been closely aligned with the Fed Chair in the past, sees no need for urgency after the September rate hike, arguing there is time to gather more information to provide greater clarity on the underlying economic trends and associated risks in support of setting the appropriate monetary policy. This marks a pushback against the recent hawkish remarks we've had, typically from the regional voters. However, today Governor Barr sees the US not getting to the 2% inflation target in a timely way unless it adjusts its policy, which he views as likely. DXY started the day at 101.19, hitting highs of 101.612 before trimming to around 101.37.

US data was disappointing. JOLTS fell 7.079mln, beneath the 7.23mln expected in August, with the quit rate unchanged at 1.9% and the vacancy rate down to 4.3% from 4.2%. Meanwhile, Consumer Confidence dropped in September, weighed by views on the present and future situations.

Antipodes underperformed in G10 FX vs USD, while JPY saw modest strength as Williams' remarks sent support via the pullback in US 2yr yields, with money markets returning to a coin flip for a 25bps Fed rate hike in October (prev. 70%). 

AUD weakened despite the expected RBA rate hike, as the accompanying language from Governor Bullock was dovish leaning. "Hopes the four hikes delivered this year will be restrictive enough to slow inflation and that, if inflation comes down, further hikes may not be needed" - signalling a potential pause/end to the hiking cycle, conditional on inflation. AUD/USD hit lows of 0.6966 from 0.7012 seen at the start of the week.

In the EU morning, CNH was modestly weighed by the PBoC cut the mortgage-supplementary lending rate (PSL) by 25bps, lowering the one-year PSL rate to 1.50% (prev. 1.75%). Williams-induced USD weakness allowed for the CNH to finish firmer.