Daily Market Pulse

USD rebounds as MBA mortgage applications increase

5 minute read


Yesterday, the USD index rebounded nearly 0.4% after recent data showed that MBA mortgage applications increased by 2.7% in the week to November 11, while Minority Sales increased by 1.3% in October compared to the previous month and Industrial Production contracted unexpectedly un 0.1% intermenstrual also in October. The DXY´s positive move is on the back of the realization that the Federal Reserve and other major central banks see no reason to pause their rate-hiking cycles any time soon. There is no major data due today, thus investors will follow the political and geopolitical headlines across the globe.


Following the lack of risk appetite in the global markets and the hawkish Fed, the common currency dropped 0.32% on Thursday. Nonetheless, the narrowing of the Germany-Italy bond yield spread suggests that the Euro´s path higher has become feasible. The market view is that as long as Italian bonds continue to outperform, the Euro is likely to stay on an upward path, with the next major hurdle being the European Central Bank meeting next month. It seems to be a consensus in the market that the ECB will deliver a 50bps hike. Earlier this morning, ECB President Christine Lagarde said that ECB will keep raising interest rates and may even need to restrict economic activity to tame inflation.


The Cable slid 0.42% amid falling gilt prices after the UK government released its latest fiscal statement. Market players continued to digest the news that the government unveiled a sweeping £55 billion ($66 billion) fiscal plan as it seeks to plug a gaping hole in the public finances and restore Britain’s economic credibility, even as the country teeters on recession. Adding more pressure on the GBP, UK retail sales posted a weaker-than-expected rebound in October, underlining the cost-of-living crisis draining consumer spending power. The latest events in the UK economy suggest that BoE will deploy a 50bps hike in its next meeting in December.


Like other G10 currencies, the JPY posted losses of 0.5% on Thursday, following the latest actions by the Bank of Japan, which left rates unchanged. This morning, following further easing from the virus from China limited, the JPY shows gains as the Dollar declines and risk-sensitive currencies gain. Moreover, Japan’s inflation hit its fastest clip in 40 years in October, which further stretches the credibility of the central bank’s view that continued stimulus is needed to secure stable price growth. Also, earlier today, North Korea test-fired a suspected intercontinental ballistic missile with an estimated range long enough to carry a warhead to the American mainland, prompting the US to condemn what it said was an unlawful action.


Yesterday, the Loonie little moved against its US counterpart, amid weaker oil prices and USD gains across the board. The market narrative still pricing investors shifting their focus back to concerns over the oil demand outlook after geopolitical tensions eased, while China is grappling with rising Covid cases and a hawkish Fed. This morning WTI rises 0.39% near $82/bbl. Given the lack of relevant data today, investors and traders will keep a close eye on the US headlines.


The peso traded lower this Thursday, with a depreciation of 0.43% against Wednesday's reference price, in tandem with most of the main currencies in the region due to a strengthening of the US dollar. Overall, the currency was hit by the lack of global appetite for risky assets due to renewed concerns that the Fed would maintain its restrictive stance, following comments by a US central bank official. For today, there are no relevant macro data due to be released.


Once more, the Chinese yuan slid 0.83% down against the USD on Thursday, with traders´ attention riveted on the US policy outlook after Federal Reserve officials vowed to continue raising rates. Earlier this morning, the CNY strengthened, reversing previous losses, recovering after bond market woes ebbed and higher seasonal corporate demand for the local currency lent support. Moreover, supporting the currency, the PBOC provided a net nine billion yuan ($1.3 billion) of seven-day liquidity via its open-market operations on Friday, adding to the 123 billion yuan on Thursday. The central bank’s cash infusion with reverse repurchase contracts every week has hit the highest amount since late October.


Thursday's session was marked by increased volatility, with the Brazilian currency opening the session recording a large gap of 100bps. Lula’s government has been announcing some of its plans and projects for the next year which brought caution and increased anxiety among investors. The new projects would add more public spending that could increase inflation and override the spending cap mechanism. Nonetheless, by the end of the day, the investors’ mood improved after the transition government will no longer count on the participation of his former finance minister and close associate Guido Mantega, who called for his dismissal later in the day. Today, market players will look for clues to see who the next finance minister will be. The BRL could get a boost against the dollar if Lula chooses a finance minister who is seen as fiscally responsible.


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