USD

The DXY, a common tool that indicates the general value of the USD against a basket of six major currencies, closed 0.35% up yesterday, amid a U.S. holiday. Market participants continued to digest the latest inflation numbers, which showed a clear acceleration in a broad set of items in the U.S. consumer basket. In general, with good prices skyrocketing across categories, it opens up the possibility that the Fed could quicken the pace of tapering. On the radar for today, Russia may be weighing an invasion of Ukraine, as Russia increases its military presence near the Ukrainian border, amid rising tensions between Putin and European leaders over migrants and energy supplies. The US economic docket will feature the University of Michigan’s Consumer Sentiment Index, as well as the September JOLTS Job Openings report.

EUR

Yesterday, the Euro slid 0.24% against the greenback after remarks from European Central Bank (ECB) Governing Council member Robert Holzmann. The monetary authority said that inflation may retreat, but one can’t rule out that the Eurozone will have a long period where inflation will be higher than 2%. On that note, the market does not expect that the ECB will hike rates any time soon, which adds downward pressure on the currency. Looking ahead, the military buildup by Russia near Ukraine’s border could sour the market mood over the next few days, as tensions between Europe and Russia escalate. Moreover, Brexit risks that are beginning to re-emerge act as another driver that could cap any attempt at the EUR rallying. The European economic docket will feature the Industrial Production data.

GBP

The Pound weakened 0.25% despite positive macro updates. The UK GDP rose by 0.5% month-over-month in September, which left GDP 5.3% higher than a year earlier but still lower than it was before Covid hit. With this result, the GBP heads for the third week of losses, having touched its lowest level since Christmas last year. Brexit tensions reignited over Northern Ireland is an important currency mover, as the European Union is preparing a package of retaliatory measures in case the U.K decides to suspend parts of the post-Brexit trade accord, according to local media. Ultimately, today is the last day of the COP26 conference in Glasgow, with negotiators from across the globe working to agree on the final text of agreements.

JPY

The Japanese Yen continued to underperform (-0.13%) against the greenback on Thursday, with the currency bouncing back to multi-year lows. Market players are not surprised at all, as the JPY is still sensitive to rising US Treasury bond yields. Given that inflation is rising in the US, leading to a Treasury sell-off, we could see the Yen further depreciating in the upcoming months. On the other hand, exporters have seen a boost in their revenues by the weaker Yen, triggering an upside momentum on equity markets, particularly in the Tokyo Stock Exchange. Looking ahead, Chief Cabinet Secretary Hirokazu Matsuno commented earlier today that policies to prevent the surge in fuel prices will be included in an economic stimulus package that will be unveiled next week. Currently, high fuel prices have been hurting businesses and households, which is widely observed by the Bank of Japan. 

CAD

Yesterday, the Loonie dropped 0.70% to one-week lows, on the back of hot Consumer Price Index figures from the US. Oil crude prices trading at 7-year highs didn´t avoid the CAD´s drop during the session. For today, the Treasury market´s opening in both countries, Canada and the United States, after a day off will put the market players in caution, as they keep an eye on US Consumer Sentiment for November waiting for some fresh impetus, while Canada´s agenda will not bring relevant stats. In general, a pullback in WTI prices should continue to lend some support to the Loonie.

MXN

The Mexican Peso did little (+0.01%) against the greenback yesterday, amid a new interest rate hike by Mexico's Central Bank. Market participants understood that with a 25bps hike, Banxico failed to accelerate its tightening cycle pace. Although that was expected by the majority of players, a more aggressive move would have been more welcomed. Officials repeated in the decision statement that ¨for the next monetary policy decision, the Governing Board will assess the factors that have an incidence on the foreseen trajectory for inflation and its expectations¨. Furthermore, Banxico raised its inflation forecast for the end of 2021 to 6.8%, up from 6.2% previously.

CNY

The Chinese Yuan retraced 0.04% in Thursday´s trading session, while the dollar extended gains with inflation figures back in the US and China rising to levels not seen in decades. Nonetheless, a truce in the crisis over troubled Chinese developer Evergrande, and reports that Beijing was planning to ease financial rules in the real estate sector, also provided support for the currency. Meanwhile, Chinese leader Xi Jinping achieved a major political breakthrough towards a practically indefinite rule, as he enacted a so-called historical resolution. Looking ahead, Monday´s virtual Xi-Biden summit may provide a catalyst to alleviate some of the tariffs imposed on Chinese exports, which could add appreciation pressure on the CNY, as the currency is already under-appreciation from the record trade surplus.

BRL

The Brazilian Real remains highly volatile, alternating between the best and worst currency in the world intraday, sometimes being both in the same session. Yesterday, the currency rose +1.7% against the dollar, in its highest daily rise in more than two months and touching its strongest level since the beginning of October, due to expectations of a more intense tightening of monetary policy in Brazil and optimism about the PEC of Precatórios. First, market players continue to increase bets that the Central Bank may need to accelerate the tightening cycle further, with a 200bps rate hike in the next meeting in December. However, economic growth is already showing a slowdown in momentum, with September retail sales dropping 1.3% in September when compared to August, wrapping Q3 up in the retracement area. Finally, the approval of the PEC of Precatórios in the Lower House removed part of the uncertainties of the fiscal scenario. With this in mind, the bill must be approved by the Senate as well. Local media reports say the government is not confident it will be quickly approved in the Senate, where it also needs two rounds of voting.