USD

Having moved into a Deutsche-induced decline Friday, risk assets are attempting to find a steady footing in the early part of this week. Markets will have one eye on bank stocks to see if there are any emerging signs of distress. In the case of Deutsche, their CDS (credit default swap) ballooned between Wednesday – Friday, which led the stock price lower, followed by broader short-term market declines. Perhaps vocal intervention from the German chancellor and the ECB’s Lagarde helped settle nerves on the day. The risk-off environment also helped the greenback find a short-term base. After rising by over 0.5% through Friday, the dollar index (DXY) has since stalled. 

EUR

While the single currency benefitted from an uber-hawkish tone from the ECB’s Lagarde, sentiment continues to point toward further rate hikes as they attempt to tackle recently rising inflation. The sudden selling pressure on European bank stocks (see USD) soon ended the rally. EUR/USD has subsequently dropped by over 1.3% from the recent high. Assuming that markets get five minutes to focus on incoming data releases, this week’s key Regional and German inflation reports could impact the market-implied expectations for future ECB moves. We live in hope. 

GBP

The pound has responded well to the recent BoE rate hike, with the rallies possibly aided by the fact that UK banks have (so far) avoided the recent bank woes. GBP/USD is up over 1% over the past two weeks, with the broader pound faring somewhat better. Looking ahead, the UK growth data will be the one to watch at the end of this week, with growth expected to flatline over the past quarter.

JPY

USD/JPY has steadily declined each week for the past month, moving lower by almost 4%. This week is a big, big week for incoming Japanese data, with crucial Tokyo inflation expected to confirm a sharp decline, following on from declines amongst recent national data. The latest Retail trade and Industrial Production data are scheduled for release simultaneously. Despite the data risk, the Yen is still likely to be dominated by a broader risk appetite, given that yields on key Japanese bonds have dropped spectacularly over the past few weeks, mitigating any necessary intervention from the BoJ. 

CAD

After a series of weaker economic releases seemingly underpinned the recent decision by the BoC to pause rate hikes, Friday’s stronger-than-expected Canadian Retail Sales data has perhaps given the BoC’s decision its first significant challenge. Retail Sales jumped by a whopping 1.4% throughout January, smashing estimates of a flatline release. USD/CAD had a fairly flat week last week, but the Loonie has made a slight gain this morning amidst broadly positive risk sentiment. 

MXN

Having rallied by over 5.5% in the previous two weeks, USD/MXN faltered throughout last week, giving back over 2.2% of the previous move. Helping to fuel the Peso rally is speculation about incoming Hedge Fund flows into Mexico, taking advantage of the recent Peso decline and attracted by high Mexican interest rates. Further support stems from a relatively good economic backdrop. Assuming broader market risk appetite continues to recover, USD/MXN would be expected to decline further as Mexico attracts further inflows. 

BRL

Much the same as USD/MXN, USD/BRL edged lower over the past week, although at 0.35%, the decline was far narrower. This week’s visit to China by a large delegation led by the Brazilian President may attract short-term headline risks. The visit is expected to conclude with Brazil and China further strengthening economic ties.