Daily Market Pulse

USD

The U.S. dollar index rose above 102 on Tuesday as investors awaited the Federal Reserve's highly anticipated interest rate decision this week, but the currency is still on track for its fourth straight monthly decline amid growing fears of a U.S. recession and bets on a slower pace of central bank policy tightening. While the Federal Reserve will most likely decrease the pace of its monetary policy tightening by raising interest rates by 25 basis points on Wednesday, it will still be extending the most rapid rate adjustment since the early 1980s. Nonetheless, the major market indices are on course to close the month on a positive note. Those gains occurred amid signs of lowering inflation, and a still robust economy provided some relief to investors.

EUR

The Euro lost 0.16% in the final session of January but remained close to nine-month highs and was on course to gain 1.1% for the month, amid expectations that the Fed will moderate the pace of rate rises while the ECB will maintain its aggressive approach. Investors are anticipating the European Central Bank's monetary policy decision on Thursday, with the central bank expected to boost rates by 50 basis points, raising borrowing costs to their highest level since 2008. At the same time, statistics showing the Eurozone unexpectedly expanded 0.1% in Q4 2022, exceeding market expectations of a 0.1% drop, and new CPIs for France and Spain, indicating inflation crept up in January, fueled hopes that the ECB's tightening cycle would soon cease.

GBP

Following Monday's fall (0.24%), the Sterling was struggling to recover and was last seen trading flat on Tuesday morning. The dollar's advances, combined with disappointing data from the UK's economic calendar, are undermining the Sterling. UK consumer credit growth falls short of expectations, mortgage lending falls to a more than one-year low, and mortgage approvals fall for the fourth month in a row. Going forward, Investors expect the Bank of England to raise interest rates to 4% on Thursday, but they are divided on how much higher borrowing costs will rise. Rising interest rates weighed on risk sentiment elsewhere, as investors worried about a subsequent recession. The IMF has reduced its prediction for UK GDP in 2023 by 0.9% to 0.6%.

JPY

The Japanese Yen is up 0.02% against the dollar, but it appears to be losing strength ahead of crucial central bank policy meetings. In Japan, Finance Minister Shunichi Suzuki stated that salary rises are crucial to both the government and the Bank of Japan (BoJ). "It is too early to evaluate whether the joint statement has to be amended," the minister remarked, although his remarks had no effect on the market. In other news, investors digested a deluge of mainly favorable Japanese data, with the country's unemployment rate remaining unchanged in December and retail sales and industrial production statistics coming in better than expected.

CAD

Following yesterday's 0.57% loss, the Loonie continues to fall significantly. The Canadian currency has not suffered as a result of the Bank of Canada's announcement that it will maintain interest rates at their "current level as they assess the impact of the cumulative 425-basis-point rise in the policy rate." Some analysts and traders believe the Bank of Canada will decrease interest rates before the end of the year. Meanwhile, Fed officials have signaled that U.S. interest rates will rise higher and remain restrictive until inflation reaches the 2.0% target. The Canadian dollar should fall further as the CAD/USD differential widens. The Canadian currency, on the other hand, has benefited from a 10% increase in West Texas Intermediate oil prices from January 5 to today.

MXN

The Mexican Peso fell (0.03) on Monday as the U.S. dollar climbed and risk assets fell ahead of the Federal Reserve's rate announcement on Wednesday. According to CFTC data, investors upped their short Peso positions to 48,740 contracts in the week ending January 24 from 48,639 short contracts the previous week.  Meanwhile, President Lopez Obrador and Finance Minister Rogelio Ramirez de la O have confirmed that they will meet with Citi CEO Jane Fraser this week to discuss Citi's sale of Banamex, the bank's retail business in Mexico. Today, the Peso is down 0.33% against the dollar. According to new data, the Mexican economy grew by 0.4% quarter over quarter in the last three months of 2022, following a revised 1% growth in the previous quarter and exceeding market estimates of a 0.3% gain. The Peso should benefit from this during the day.

CNY

After statistics revealed that Chinese manufacturing and services activity returned significantly and turned expansionary in January, the offshore yuan firmed up around 6.75 per dollar, hanging near its best levels in over six months. During the week-long Lunar New Year celebrations, robust holiday spending and tourism data fuelled hopes for the country's continuing economic recovery, as Chinese authorities vowed to push consumption as a main economic engine and to expand imports in Asia's largest economy. According to the most recent figures, China's GDP rose 2.9% year on year in the fourth quarter, down from 3.9% in the previous quarter but above estimates of a 1.8% increase.

BRL

The Real is drifting lower on Tuesday, awaiting interest rate decisions in Brazil and the United States, which will be revealed on Wednesday. On the external front, investors are wary of a succession of interest rate increases by major central banks this week. Locally, the Central Bank of Brazil will determine its interest rate on Wednesday, and the assumption is that the Selic rate will remain at 13.75%. Meanwhile, all eyes are on the next actions of Petrobras' new president, Jean-Paul Prates. On Friday, the executive noted that he sees the state-owned firm as the key driver of Brazil's energy transition, emphasizing that he will also work for the company to continue its journey in the oil and gas industry.