Daily Market Pulse

The USD continues to weaken this morning, even as the US Producer Price Indices come in hotter than expected for the month of September. US PPI dropped to 0.5% MoM (from 0.7% previously), while analyst expectations called for a drop down to 0.3%.

The market has so far shrugged off this data as it awaits tomorrow’s US CPI print, a much more widely followed metric of inflation. In addition, at 2 pm EST this afternoon, the Fed is releasing minutes from the previous FOMC meeting for further insight into the rationale of committee members.

Some of those members have continued to speak over the last few days, with San Francisco Fed President Daly walking back recent dovish statements with commentary on the long-term neutral rate of interest.

Last week, she had mentioned that the bond market may have done some of the Fed's job already (implying recent rises in treasury yields may allow the Fed to pause further rate hikes), but yesterday she stated that the neutral interest rate may be higher now than it was before the pandemic, matching the “higher for longer” mantra that has repeatedly come from FOMC meetings.

Fed Governor Bowman echoed those statements this morning, saying interest rates may need to rise further and stay there for an extended period to get inflation closer to the Fed’s target.

EUR/USD is marginally higher on the day, in line with a weaker USD across most pairs. The pair has rallied about 1.7% from the lows seen earlier this month but is still almost 6% lower than July’s highs. German final September CPI was in line with expectations at 4.5% YoY.

USD/CAD is close to unchanged on the day as general USD weakness is offset with a continued drop in oil prices. Building permits in Canada rose more than expected to 3.4% in August. Existing home sales will be released tomorrow at 9 am EST.

GBP/USD is marginally higher on the day, extending six straight days of gains. The pair is 2.3% higher than its lows last month but is still about 6.3% lower than the highs seen in mid-July. 

USD/MXN is lower on the day, providing some relief to Peso holders after recently rising as much as 10% from the lows seen in July. The market is shrugging off the uncertainty President Lopez Obrador introduced recently when he unilaterally announced changes in the fee structure of the country’s airports.

USD/BRL is close to unchanged on the day as a local measure of inflation came in lower than expected, implying the Brazilian Central Bank may be bolstered in continuing its half percentage cuts to its benchmark interest rate, most recently at 12.75%.