Markets Remain in Risk-On Mode

Yesterday, the European Central bank released its monetary policy meeting minutes, discussing the latest decision and its efforts to restore inflation and growth to the Euro Area. The ECB noted that it has two main channels to maintain its accomodative monetary policy, which are namely extending the duration of the current quantitative easing asset purchase program beyond September 2016 or to cut deposit rates further. Expanding the asset purchase program however is viewed as the immediate response amid news that the ECB will be attempting to front load more purhcases ahead of the winter months.  It is widely seen that the impact of lower energy prices will continue to keep the Euro Area’s inflation well below the ECB's target rate. The Euro initially weakened on the release to test the lows near 1.1250 before recovering and rebounding to close near 1.1274.

September's FOMC meeting minutes released yesteday showed that unlike the narrative from the various Fed members in the past few weeks who said that the September rate hike was a 'close' call it was actually divided. The minutes presented a view that the FOMC voting members were largely divided between members who saw the economic conditions warranting a rate hike by end of this year and the other members who preferred to wait for more economic data before deciding to hike rates. The FOMC minutes also revealed lingering concerns amongst Fed's members on inflation expectations. While the FOMC members were broadly optimistic on the labour markets, their confidence on inflation rebounding was low. The dovish Fed minutes saw the US Dollar weaken across the board with most commodity risk currencies showing strong gains, in particular the Kiwi which continued to rally and is currently testing a two-month high at 0.6680.