On Tuesday, the markets intensified reassessment of prospective pace of policy tightening by the Fed. The dollar index creeped higher aiming for a retest of yearly highs at 93.72, supported by lower prices of risk assets, as well as higher yields of short-term Treasuries. The two-year yield hit a new high since April 2020, reaching 0.29% on Monday. Rising US yields on risk-free instruments lures investors from countries with low interest rates, such as Japan or Switzerland, so the currencies of these countries are noticeably sagging against the dollar. In less than a week, USDJPY gained 2%, which is quite unusual movement for this low-volatility pair. In addition, Japanese yen is under pressure from high oil prices, as the country is a major importer of hydrocarbons.

Treasury Chief Yellen and Fed Chief Powell are speaking in the US Senate today. Both will be under pressure - Powell will explain why the two regional Fed leaders have resigned and how this is related to possible insider trading, while Yellen will have to clarify the situation with the IMF's accusations that they manipulated China's rating in the World Bank report.

The data that will gives us a peek in performance of the US economy is trade balance report, consumer confidence estimate from the Conference Board and house prices index. Market nervousness about the issue of debt ceiling and a possible shutdown of the government appears to be worsening, which adds to sell-off of Treasuries and puts pressure on risk assets. In turn, progress in resolving this situation should bring some relief to battered assets.

The ECB symposium will also begin today, at which potentially something unexpected for the market can be said. A good example is the comments of Mario Draghi in 2019, which significantly weakened the Euro. The ECB's focus is gradually returning to inflation figures, which can be said not only about the ECB, but also of other large central banks. Eurozone inflation data for September is due out on Friday, which could potentially dampen EURUSD bearish trend, especially if inflation rises above forecast. Due to the rise in oil prices and return of the economy to normal activity, the risks are indeed shifted towards higher inflation reading, more than the forecast of 3.3% y/y suggests.

Speaking about the short-term prospects of EURUSD, the selling momentum is likely to push prices down to the lower border of the downtrend (1.1650), from which a short-term rebound to 1.17 may follow:

As for the GBPUSD, the pound, which weakened strongly against the dollar, may be supported by the speech of the Bank of England official Mann today, However, not much. Fire sales of the Cable could indicate a shift in rate expectations which adds to the risk of a drop towards this year’s low at 1.35: