Forex Today: Key PMI data loom as markets remain choppy

Markets await PMI releases on Friday, 23 October:

Preliminary October Purchasing Managers' Index (PMI) reports from Germany, the Eurozone, the United Kingdom (UK) and the United States (US) are in focus on Friday. Ahead of the releases, major currency pairs are holding within their weekly ranges during the European morning.

The US Dollar (USD) Index is recovering from Thursday's slight decline, although it continues to trade below 102.00. Risk aversion helped contain the USD's losses, but a steep fall in US Treasury bond yields put pressure on the currency. Thursday saw the benchmark 10-year US Treasury bond yield decline by more than 3%, taking it below 5% for the first time in a month. The yield is edging higher early on Friday, though it remains just under 5%. US stock index futures, meanwhile, are mixed following Thursday's losses of nearly 3% in the Nasdaq Composite and more than 1% in the S&P 500.

Defensive currencies find support as US yield curve hints at subtle regime shift

Recent market movements suggest a “subtle regime shift,” according to ING analysts, who argue that “higher energy prices no longer mean higher rates forever; instead, the long end is starting to express a little more fear about growth.” Against that background, their view is that “this environment probably favours a little more outperformance of the defensive currencies over commodity currencies.” ING nevertheless warns that “until the rock-solid short-end of the US yield curve starts to buckle, it is hard to make the case that the Dollar needs to fall across the board,” leaving the US currency supported despite more apparent concerns about growth at longer maturities.

September retail sales in the UK fell 0.4% month on month, the Office for National Statistics reported on Friday. Following August's 0.7% rise, the reading was weaker than the market forecast of a 0.1% decline. GBP/USD showed little reaction to the figures, with the pair last trading sideways just below 1.3400.

Japan's National Consumer Price Index increased 2.1% year on year in September, up from August's 1.9% rise, according to data released earlier in the day. Separately, the Jibun Bank Manufacturing PMI eased from 54.1 in September to 53.3 in October, whereas the Services PMI rose from 51.3 to 52 over the same period. Having fallen more than 0.8% on Thursday, USD/JPY is recovering towards 157.00, up about 0.2% on the day.

Australia's S&P Global Composite PMI fell from 51.3 in September to a flash October reading of 47.7, signalling a contraction in private-sector business activity. AUD/USD has been relatively subdued in the face of the disappointing figures, trading above 0.7020.

EUR/USD has found some stability above 1.1200 early on Friday, having finished Thursday lower.

Gold extended its decline during Asian trading, reaching a three-month low below $4,000 after Thursday's loss of about 2.8%. By Friday's European morning, the metal is trading just above that threshold, with a recovery still struggling to gain traction.

Gold fails to benefit from US equity sell-off as oil and inflation take focus

Despite falling equities and bond yields, ING analysts observe that gold prices "failed to benefit from yesterday's equity sell-off and the significant fall in US Treasury yields, with the 10-year yield falling back below 5%." Rather than attracting safe-haven buying, they say, "gold prices came under pressure." ING sees the market as "more focused on higher oil prices and what it could mean for inflation — and ultimately central bank policy," indicating that changing expectations for the policy response to energy-driven inflation are currently having a greater impact on bullion than movements in equities or US yields.