Forex Asia Update - USD

The US dollar was weaker across the board despite continued hawkish commentary from Fed's Moscow, with CAD in particular leading the gains.

EURUSD traded up to a high of 1.2726 from 1.2698 while USDJPY traded between 118.20 and 118.46.

US 2 and 10-year Treasury yields nudged down by 2 bp each, reflecting that the market has become very familiar with the Fed's message, while equity markets finished up strongly after three days of continued losses. It's worth noting the complete apathy in the FX markets at present, with EURUSD 3-month implied vols now at all-time lows of or just below 6%, while USDJPY 1-year vols are similarly at record lows.

Chicago Fed President Moskow sounded a hawkish note saying that more rate hikes may be needed. He said growth was expected to average below 3% potential for the next year and that inflation could run above 2% for some time, although core inflation was likely to moderate due to slowing growth. However, his comments were basically consistent with the message we've generally been hearing from Fed officials and the eurodollar curve saw no sustained impact.

Indeed Fed's Pianalto has made similar comments again this morning.

A key focus today will be US mid-term elections, with results likely to come out during the Asian morning tomorrow. Although weekend polls have showed some narrowing, the Democrats are widely expected to take control of the House and possibly the Senate. While we think this would be viewed as moderately USD-negative given market concerns about protectionism and headline risk from hearings, we would not expect a notable knee-jerk reaction.

Today there are no major data events scheduled for the US session.