Daily Market Pulse
Euro Sinks as ECB Signals an End to Rate Hikes
5 minute readUSD
The US Dollar is rallying this morning as markets react to the influx of US data alongside the ECB's hint that there will not be further rate hikes in the Eurozone.
US Retail sales increased by 0.6% month-over-month in August, surpassing expectations and indicating strong consumer spending despite higher prices and interest rates. The most significant increase by far was in gasoline station sales, up 5.2%.
Meanwhile, PPI for August came in at 0.7%, the highest level since June 2022, driven by a 10.5% surge in energy costs, while prices for services increased by 0.2%.
Finally, initial jobless claims modestly increased to 220K last week, remaining near a seven-month low, while continuing claims slightly rose to 1.688M, still near a one-month low.
EUR
Despite raising rates 0.25% today to a 22-year high, the ECB signaled that it is likely to halt further tightening as inflation, though expected to remain high, is starting to decline. The news has sent the Euro tumbling over 0.5% versus the Dollar.
The ECB's latest projections anticipate average inflation at 5.6% in 2023 and 3.2% in 2024 due to elevated energy prices, with a reduced projection of 2.1% for 2025, while GDP growth forecasts have been significantly lowered to 0.7% in 2023, 1.0% in 2024, and 1.5% in 2025.
Looking ahead to tomorrow, consumer price inflation numbers from France and Italy are on the docket at 2:45 AM EST and 4:00 AM EST, respectively.
GBP
The British Pound is down over 0.4% today as traders assess the ECB's interest rate decision while sifting through an array of data from the US.
On the domestic front, the RICS UK Residential Market Survey showed house prices fell to a 14-year low in August due to high mortgage costs and economic concerns affecting demand. Additionally, RICS noted that agreed sales were at their weakest since April 2020, while new buyer enquiries also declined slightly.
Next on the UK calendar is the BOE's consumer inflation expectations report, scheduled for 4:30 AM EST tomorrow.
JPY
After posting two straight daily declines, the Japanese Yen is slightly in the red this morning in the aftermath of today's headlines out of the US and Europe.
Meanwhile, Japan's industrial production fell 1.8% in July, slightly better than initially estimated but marked the third monthly drop this year. This decline was primarily driven by decreases in production machinery, electronic parts and devices, and electrical machinery and communication equipment.
In addition, Japan's core machinery orders dropped by 1.1% in July, worse than expected. The decline in business investment was mainly due to a 5.3% decrease in manufacturing while non-manufacturing increased by 1.3%.
CAD
Following four consecutive winning days against the Greenback, the Loonie is slightly higher today as CAD traders review this morning's key US releases and the latest Canadian wholesale sales report.
In July, wholesale sales in Canada increased by 0.2%, far less than the 1.4% in the preliminary estimate, while posting an annualized increase of 1.1%. Sales of motor vehicles, parts and accessories saw the most considerable increase at 3.9%, followed by building materials and supplies at 2.7%.
Up next on the Canadian calendar are fresh manufacturing sales, new motor vehicle sales, and foreign investment figures, each slated for 8:30 AM EST tomorrow.
MXN
The Mexican Peso is mostly unchanged this morning after gaining substantial ground on the Dollar in each of the previous three sessions. Yesterday's US CPI print gave markets confidence that the Fed would not raise rates, which propped up LATAM currencies as a whole.
Fitch Ratings has raised Mexico's 2023 economic growth forecast from 2.5% to 3.1%, citing strong consumer spending, a solid job market, increased private investment, and shifting global supply chains as contributing factors. Fitch predicts a growth rate of 1.8% in 2024, followed by a 2.3% expansion in 2025. However, these figures are below the Mexican government's growth forecasts.
BRL
After gaining over 0.5% yesterday, the Brazilian Real is rallying again versus the Greenback this morning as the North American session begins.
On the data front, Brazil's business confidence index for September is set to be released later this morning. The index has been trending in the right direction as of late, seeing improvements each month since April.
Looking ahead to tomorrow morning, Brazil's retail sales report for July is due for release at 8:00 AM EST, with market expectations pointing to a 0.3% monthly increase, which would be its best read since March.
CNY
The Chinese Yuan is in the red this morning following the PBOC's decision to cut the reserve ratio for banks by another 0.25% - its second such cut this year. The decision is the latest in a series of moves by China's central bank to increase liquidity and stimulate the economy. However, such stimulus also hinders their efforts to stabilize the Yuan.
In addition, Reuters has reported the PBOC has instructed major banks not to immediately offset their FX positions after selling US Dollars to clients until the bank's position reaches a certain level, meaning the banks would absorb some FX risk to alleviate pressure on the Yuan.
