The risk averse market mood supported the dollar to capitalize against most of its peers yesterday and continues to gather strength during early hours of Thursday. The U.S. Dollar Index advanced 0.89% yesterday while today the greenback advanced another 0.5% ahead of key inflation figures in the US. Analysts forecast that the annual CPI is set to decline to 8% in October from 8.2% in September, while core CPI readings are expected to edge lower to 6.5% from 6.6%. Investors remain wary of the upcoming inflation report as higher than expected results would give leeway to policymakers to consider one more 75 basis points rate hike in December which would underpin further appreciation of the dollar.
The Euro momentum faded on Wednesday, and it failed to consolidate above parity against the greenback amid a broader risk off market mood in global markets. Today the Euro slide continues recording 0.65% losses ahead of key inflation reports which keeps markets on check. Additionally, this morning the ECB released its Economic bulletin which provided little support to the common currency highlighting investor concerns over the economic outlook and sustained inflation. The report explained that inflation remains too high and will stay above the target for an extended period. Global economic activity contracted in Q2-22 with survey data pointing to subdue growth momentum in the near term. Growth in the euro area is likely to have slowed significantly in Q3.
The British Pound plunged yesterday 1.61% against the dollar amid a broader risk off sentiment in global markets and expectations of upcoming challenging times and slow growth. Moreover, the BoE remains under fire as former policymakers suggest that the central bank has been soft on inflation despite hiking rates to the highest in 14 years. John Vickers former chief economist of the Bank of England said he is profoundly worried about the lack proactivity from the central bank and that interest rates should be at 4% at this stage in order to effectively pull inflation back. Consumer prices surged by 10.1% in the year through September, the most in four decades.
The Japanese Yen recorded 0.54% losses yesterday and remains steady during early hours of the trading session supported by its safe haven appeal and the broader risk off sentiment. Haruhiko Kuroda, the Governor of the Bank of Japan said in parliament that an exit from current policy will be discussed when the central bank’s stable inflation target is on sight. Policymakers are set to support Japan’s economy with monetary easing and will maintain its 2% inflation target. However, the recent rapid Yen weakening is negative for the economy although the Bank of Japan will not target foreing exchange rates or have any plans to intervene.
Similar to major peers across the board, the Loonie also slid against the greenback on Wednesday, amid a risk-off sentiment that weighed on the market sentiment. The volatility in the cryptocurrency market, along with the US midterm race are seen as the main drivers. The plunge in the crypto space over the last two days spilled over the stock and commodity prices. Today, US consumer price index data may be the next event risk for the US Federal Reserve’s policy rate and might have a direct impact on the Loonie - investors will be looking for clues on the path of future interest rate hikes by the Fed. Wrapping up the day, governor, Tiff Macklem, is due to give a speech on the evolution of the Canadian labour market.
The peso extended its loss, after dropping 0.26% against the US dollar on Wednesday. The MXN retreated in tandem with other currency pairs in the region, as risk assets came under pressure on the back of tight US midterm elections, higher volatility in the crypto space, and extension of lockdowns in the biggest cities in China. On the economic front, the country´s October inflation data rose to 8.41%, however, less than expected, suggesting that price levels are peaking just as the central bank prepares to increase rates later today. It´s expected that Banxico will move the interest rate to 10%, therefore a hike of 75 basis points - if confirmed, this will be the first time the reference rate will be double-digit since June 2001. Furthermore, the Central Bank targets inflation at 3%, plus or minus 1%.
The yuan is back in the negative path, closing 0,14% down against the US. dollar on Wednesday as a resurgence of virus cases in the country weighed on the market mood. According to local media, China is increasing Covid restrictions in some of its largest cities, such as Guangzhou and the capital Beijing, as officials increase efforts to curb outbreaks that have pushed the national case tally to the highest in more than six months. On the economic front, China’s producer prices fell into deflation for the first time in nearly two years as global commodity prices dropped and restrictions to control Covid dragged on demand. On the other hand, consumer prices rose 2.1% year-on-year, moderated figure although. Overall, the CNY might continue to subdue heading into the year-end.
The Brazilian real has been showing its main characteristic, volatility. Yesterday, the currency gave back recent gains and closed down almost 1% against the greenback. This movement is driven by a risk-off sentiment in the global market. Among the factors are the extension of a partial lockdown in Guangzhou, the fallout of FTX rescue deal, and a closer-than-expected US Senate race. On the domestic front, there is still caution regarding the 2023 Budget. There are expectations that Lula will soon announce his plans for the Transition bill, which could release around R$175 billion above the spending ceiling to finance public accounts next year.