Daily Market Pulse
Sterling Sinks After BOE Elects to Hold Rates Steady
5 minute readUSD
The US Dollar is higher today and has touched its highest level since early March. Today's moves come as traders digest yesterday's "hawkish hold" from the Fed and today's US employment and manufacturing data.
Initial jobless claims in the US dropped by 201K last week, the lowest level since late January and well below market expectations of 225K. Additionally, continuing claims decreased to a near eight-month low of 1.662M, suggesting improved employment prospects for those unemployed and looking for work.
In addition, the Philadelphia Fed Manufacturing Index fell to -13.5 in September, with indicators for general activity, new orders, and shipments returning to negative territory.
EUR
After posting two consecutive losing days and falling to a 26-week low, the Euro is on the back foot again today as markets react to the latest decisions from the Fed and BOE.
On the data front, France's business climate indicator increased to 99 in September, surpassing market expectations of 97. The rise was driven by improved evaluations from manufacturers on personal production, general production, and selling prices. However, there was a slight rise in perceived economic uncertainty, and opinions on past production and finished goods inventory worsened.
Later this morning, the September preliminary Eurozone consumer confidence report is slated for release at 10:00 AM EST and is expected to decline for the second straight month.
GBP
Sterling is down this morning in the aftermath of the BOE's surprising decision to hold UK interest rates, the first pause in tightening in almost two years.
The Monetary Policy Committee voted narrowly with a 5-4 majority in favor of holding rates steady, citing concerns about weaker growth and the need to sustainably return inflation to the 2% target in the medium term, despite yesterday's inflation data coming in lower than expected.
Meanwhile, the UK's public sector net borrowing, excluding public sector banks, reached GBP 11.6B, exceeding forecasts. Central government borrowing, the most significant component of the public sector, rose GBP 1.2B year-on-year.
JPY
The Japanese Yen is inching higher today as JPY traders get set for the upcoming BOJ decision in the overnight session. While markets do not expect any policy changes to be announced, the BOJ has a history of catching markets off-guard, as seen in their surprising July decision to loosen its yield curve control.
Ahead of the BOJ, key data out of Japan, including national CPI and PMI figures, are set for release at 7:30 PM EST and 7:50 PM EST, respectively. Market forecasts point to annual core inflation cooling slightly to 3.1% in August versus the 3% seen in July, while Japan's manufacturing sector is expected to contract for the fourth consecutive month.
CAD
The Loonie is down today on the heels of fresh US and Canadian economic data this morning.
New home prices in Canada saw a marginal increase of 0.1% month-on-month in August, with most surveyed areas reporting no price change. Among the areas that saw notable increases were Calgary and Vancouver, while Ottawa, Saskatoon, and Oshawa experienced price declines. On a year-over-year basis, new home prices in Canada declined by 0.9%, with Ottawa leading the yearly decline.
Meanwhile, the number of Canadians receiving regular Employment Insurance benefits increased by 6.0%, marking the third consecutive monthly rise and the most significant increase since May 2021.
MXN
After narrowly finishing in the red yesterday, the Mexican Peso is down this morning as traders analyze the latest retail sales report out of Mexico.
Mexico's retail sales rose 5.1% year-on-year in July, better than market expectations but below the 5.9% seen in June. On a monthly basis, sales increased 0.2%, in line with expectations but well below the 2.2% surge seen in June.
Looking ahead, Mexican inflation and economic activity figures are on deck tomorrow at 8:00 AM EST. Markets anticipate mid-month headline inflation to slow to 4.48% year-on-year, while core inflation is expected to cool to 5.76%.
BRL
The Brazilian Real is down today following the BCB's decision to cut its Selic rate by 0.5% for the second consecutive meeting.
BCB members noted they "unanimously anticipate further reductions of the same magnitude in the next meetings" to support the disinflationary process. While recent data show that inflation is way down to 4.61% from its 12% peak in 2022, it remains above the target, and the bank's inflation projections for 2023 are 5.0%, followed by 3.5% in 2024 and 3.1% in 2025. Additionally, although the economy has shown greater resilience than expected, the BCB foresees slowing growth in the coming quarters.
CNY
The Chinese Yuan is back in the red for the fourth consecutive day, falling to its lowest level against the Dollar in over a week as traders assess the implications of a "higher-for-longer" approach from the Fed while the PBOC is already in stimulus mode.
In addition, the PBOC continued its campaign to support the Yuan by issuing another warning against Yuan speculators while also delivering its strongest onshore fix since August 14.
With China's economic calendar empty until next week, the Yuan will be heavily influenced by moves in the Greenback and broader risk appetite to close the week.
