Forex Today: BoJ holds policy steady, Gold falls below $4,000

Markets Navigate Central Bank Decisions and Data on Friday, 30 October:

The latest economic releases and central bank decisions are prompting increased volatility early on Friday, with investors also monitoring movements in US stock index futures. The calendar later in the session includes Germany’s preliminary October inflation figures, third-quarter Gross Domestic Product (GDP) readings for the Eurozone and the US third-quarter Employment Cost Index. Speeches from European Central Bank (ECB) and Federal Reserve (Fed) policymakers are also due.

Thursday’s October ECB meeting ended with key interest rates on hold, broadly in line with expectations. At the subsequent press conference, ECB President Christine Lagarde revealed that the Governing Council had considered whether a rate increase was warranted. She also said headline inflation was expected to stay "well above target" over the coming quarters. Her hawkish remarks helped EUR/USD recover from a decline towards 1.1100, leaving the pair higher on Thursday above 1.1150. During Friday’s European morning, the pair remains supported, although deteriorating risk appetite is limiting gains and keeping 1.1200 out of reach.

Euro takes its cue from the ECB’s policy course after December

Although Commerzbank analysts say the ECB “delivered the largely expected pause” at yesterday’s meeting, they caution that policy is by no means on autopilot. The bank notes that ECB President Christine Lagarde “made it clear that, in light of higher energy prices, the Governing Council had indeed discussed another rate hike” and “left the door open to a third rate increase this year in December.”

Looking beyond the next meeting, Commerzbank sees the broader inflation environment as the more important driver of the Euro’s direction. The bank argues that “the more important question is likely to be what happens after December,” adding that “much will depend on energy-price developments,” as these will play a crucial role in shaping expectations for ECB policy.

US Gross Domestic Product (GDP), meanwhile, expanded at an annual rate of 3.4% in the third quarter, beating market expectations of 3.2% growth. September’s core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, rose 3.1% year on year, in line with analysts’ forecast.

After Google parent Alphabet said artificial intelligence summaries in search were denting advertising revenue, its shares fell more than 10% on Thursday to their lowest level since April. The company also disclosed negative free cash flow of about $9 billion. By Friday’s European morning, Nasdaq Futures are roughly 2% lower on the day. The US Dollar Index is little changed near 101.80, while the benchmark 10-year US Treasury bond yield is broadly steady below 5%, having fallen more than 1% on Thursday.

Following its two-day monetary policy review, the Bank of Japan (BoJ) kept the short-term interest rate at 1.25%, announcing the decision during Asian trading hours. At the post-meeting press conference, BoJ Governor Kazuo Ueda reiterated that the bank would continue raising its policy rate and adjusting the degree of monetary easing in response to developments in economic activity, prices and financial conditions. USD/JPY recovered momentum after slipping towards 157.00 and was last trading almost unchanged at 157.55.

With a score of 7.2/10 against a historical baseline of 7.7/10, FXS Speechtracker assessed Ueda’s remarks as slightly less confident in tone, despite his clear acknowledgement that underlying CPI inflation is now broadly consistent with the 2% target. His pledge to keep raising the policy rate and adjust monetary easing as economic activity, prices and financial conditions evolve conveyed a modestly hawkish bias. Repeated references to accommodative financial conditions and government support for growth, however, tempered that message.

Thursday’s loss of more than 1% in Gold followed three consecutive days of modest gains, as selling pressure intensified. The precious metal has extended its decline and was last quoted near $3,980, around 1% lower on the day.

Gold recovery falters as OCBC cites subdued buying and risk of another test of lows

Discussing gold’s recent recovery, OCBC strategists draw attention to the backdrop of “some easing in US Treasury yields and oil prices.” They observe that “more notably, Gold’s inability to benefit from lower yields suggests that fresh buying interest remains limited, even as earlier liquidation pressures may be easing.” Sentiment has also suffered, according to OCBC, which says that “renewed weakness in technology equities also weighed on sentiment as it raises concerns over another bout of broader deleveraging.” The bank therefore maintains that “we remain cautious near term, with further consolidation or another test of recent lows not ruled out,” highlighting Friday’s Employment Cost Index alongside “the direction of equities, yields and USD will be important to watch.”

GBP/USD remains supported near 1.3400, trading higher after Thursday’s gain of about 0.4%.