Forex Today: Markets remain choppy as key PMI data approach

What is on the market radar for Friday, 23 October?

Major currency pairs are holding within this week's trading ranges during Friday's European morning, with investors awaiting the preliminary October Purchasing Managers' Index (PMI) readings for Germany, the Eurozone, the United Kingdom (UK) and the United States (US).

A recovery in the US Dollar (USD) Index is keeping it below 102.00 after Thursday's modest decline. Risk aversion cushioned the USD's losses, but a steep fall in US Treasury bond yields put the currency under pressure. On Thursday, the benchmark 10-year US Treasury bond yield declined by more than 3%, slipping below 5% for the first time in a month. It is recovering early on Friday, although 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.

Does a subtle shift in the US yield curve favour defensive currencies?

Recent market movements indicate a “subtle regime shift,” according to ING analysts, who say “higher energy prices no longer mean higher rates forever; instead, the long end is starting to express a little more fear about growth.” Against this background, their view is that “this environment probably favours a little more outperformance of the defensive currencies over commodity currencies.” The Dollar nevertheless retains support even as growth worries become clearer at longer maturities. ING cautions 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,” highlighting the continued resilience at the short end.

September Retail Sales in the UK fell 0.4% month on month, Friday's release from the Office for National Statistics showed. After August's 0.7% increase, the decline was steeper than the 0.1% fall markets had expected. GBP/USD showed little response to the release and was last trading sideways just under 1.3400.

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

Australia's private-sector business activity moved into contraction, with the flash October S&P Global Composite PMI falling to 47.7 from 51.3 in September. AUD/USD is showing limited movement above 0.7020, despite the weak reading.

EUR/USD found stability above 1.1200 early on Friday after ending Thursday's session 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, Gold is trading just above that mark, although its recovery is struggling to gain traction.

Why is Gold missing safe-haven support as oil and inflation take centre stage?

The US equity sell-off and lower Treasury yields have not provided the usual support for bullion. 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 demand, "gold prices came under pressure." ING says the market appears "more focused on higher oil prices and what it could mean for inflation — and ultimately central bank policy," indicating that changing expectations of how policymakers will respond to energy-led price pressures currently matter more for bullion than fluctuations in equities or US yields.