Daily Market Pulse

Dollar rises over Fed’s warning

USD

Following the robust risk surge seen in the second half of the previous week, markets appear to have turned cautious as investors examine the latest developments. After dropping over 4% last week, the U.S. dollar Index is on the mend. In response to the weak October, Consumer Price Index (CPI) figures, Federal Reserve Governor Christopher Waller claimed that markets were "far out in front" and that rates would not be cut until there was "clear, robust" evidence that inflation is declining. Meanwhile, investors continued to await midterm election outcomes, with Democrats expected to win a Senate majority and Republicans likely to take control of the House. There will be no high-impact macroeconomic data releases on the U.S. economic calendar. Nonetheless, investors will be watching statements from U.S. Federal Reserve officials such as Vice Chair Lael Brainard and New York Fed President John Williams.

  • Tuesday 15 Nov - PPI  (Oct)
  • Wednesday 16 Nov - Retail Sales (Oct)
  • Thursday 17 Nov - Housing Starts (Oct)

EUR

The Euro fell marginally on Monday after reaching its highest level since July 4th on Friday. Investors flocked to the U.S. dollar after Federal Reserve Governor Christopher Waller stated over the weekend that a slower pace of U.S. interest rate hikes in the coming months would not imply that the central bank's resolve to lower inflation would wane. In other news, the European Central Bank is expected to tighten monetary policy even more in order to contain stubbornly high inflation amid fears of an economic slowdown. Fabio Panetta, an European Central Banker board member, stated on Monday that the ECB must continue to raise rates but must avoid overtightening, which may bring output permanently below trend.

  • Monday 14 Nov - Industrial Production (Sep)
  • Tuesday 15 Nov - GDP Q3
  • Wednesday 16 Nov - ECB Lagarde Speech 
  • Thursday, 17 Nov - HICP (Oct) 
  •  Friday 18 Nov - ECB Lagarde Speech

GBP

The British pound dropped on Monday after reaching its highest level since late August on Friday. Despite last week's CPI report showing consumer prices grew less than predicted in October, investors rushed for the U.S. dollar after Federal Reserve Governor Christopher Waller stated the central bank was not relaxing its stance on inflation. In other news, the Bank of England is expected to retain its policy tightening path, despite the fact that UK inflation is at a 40-year high and the economy is in recession. On the political front, British Finance Minister Jeremy Hunt will present the government's fiscal plan on Thursday, which is expected to involve £60 billion in tax increases and spending cuts as Britain attempts to repair its public finances and regain economic credibility. Investors are also looking forward to the release of inflation, employment, and retail data later this week.

  • Tuesday 15 Nov - ILO Unemployment Rate (Sep)
  • Wednesday 16 Nov - CPI  and PPI (Oct) 
  •  Friday 18 Nov - Retail Sales (Oct)

JPY

The Japanese Yen fell against the dollar, falling slightly from two-month highs, as Bank of Japan Governor Haruhiko Kuroda said the central bank would maintain monetary easing to help the economy, citing the need to achieve sustainable inflation accompanied by wage growth. The Yen was also under further pressure from a recovering dollar after a top U.S. central banker urged investors not to get too excited about one inflation report, saying that the terminal rate could be higher than expected. Meanwhile, Japan's Yen gained more than 5% last week on lower-than-expected U.S. CPI figures, which boosted forecasts for peak inflation and a less aggressive Federal Reserve tightening. Investors were also wary of further government action to bolster the Yen.

  • Tuesday 15 Nov - GDP Q3
  • Thursday 17 Nov - Trade Balance (Oct) 
  •  Friday 18 Nov - National CPI (Oct)

CAD

The Canadian dollar closed 0.37% higher and stronger against the U.S. dollar on Friday before losing its momentum early today, the strongest since September 19th, as the U.S. dollar fell after lower-than-expected inflation reading for the U.S. increased bets that the Fed will raise rates by a smaller 50 basis points next month. The Bank of Canada raised interest rates by 50 basis points on October 26th, the sixth consecutive hike, but less than the 100 basis point increase in July and the 75 basis point increase in September. Nonetheless, the central bank is expected to tighten further and raise rates by 50 basis points in December as inflation remains high. CPI numbers for Canada are due this week. Meanwhile, Bank of Canada Governor Tiff Macklem stated that the unemployment rate must rise from near-record lows in order to keep inflation under control.

  • Wednesday 16 Nov - CPI (Oct)

MXN

The Mexican Peso remains under pressure today after closing 0.4% lower against the U.S. dollar on Friday. Meanwhile, investors continued to digest a slew of economic data and the Bank of Mexico's interest rate hike the day before. Domestic industrial production unexpectedly fell for the second consecutive month in September, owing to lower mining output. Elsewhere, there is no major data release from Mexico's economic calendar, so the Peso will be influenced by broader market sentiment and the dollar's valuation.

  • No major releases this week

CNY

The offshore Yuan appreciated against the U.S. dollar, reaching its highest level in more than a month after China gave broad guidelines to bolster its property sector and loosened some Covid regulations. Markets are becoming more bullish about China's development prospects as a result of these key policy reforms and as authorities signal that they are shifting their focus to bolstering the world's second-largest economy. The Yuan was also bolstered by softer-than-expected U.S. inflation figures reported last week, which raised optimism for the Federal Reserve to delay the pace of interest rate hikes. Due to the country's conflicting monetary policy with the U.S., as well as continued economic concerns in China, primarily caused by Covid-related disruptions, the Chinese RMB has been heavily sold throughout the year.

  • Monday 14 Nov - FDI  (Oct)
  • Tuesday 15 Nov - Retail Sales (Oct)

BRL

On Friday, the Brazilian Real gained 1% against the U.S. dollar. Meanwhile, according to the most recent data, the IBC-Br indicator of economic activity in Brazil climbed by 0.05% from the previous month in September 2022, compared to a 1.13% decline in August, while analysts projected a 0.2% rise. The government anticipates that the economy will grow by 2.7% in 2022, owing to increased private investment, strong service activity, and an improved labor market. Elsewhere, in an address to parliamentarians, Brazil's leftist President-elect Luiz Inacio Lula da Silva stated that many expenditures designated as government spending should instead be classified as investments, adding to fears about rising debt levels following massive outlays for the pandemic.

  • Monday 14 Nov - BCB Focus Bulletin 
  • Tuesday 15 Nov - Republic Day 
  • Thursday 17 Nov - IGP Inflation Index (Nov)
 

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