Daily Market Pulse

Dollar regains some traction


The U.S. dollar regained traction on Tuesday after losing more than 1% the previous day as investors anticipated more clarification on the UK's budget plan while misleading stories regarding the Bank of England's proposal to suspend quantitative tightening added to uncertainty. Meanwhile, the dollar is supported by rising interest rates and a weaker global growth outlook. Traders in China were also digesting statements from U.S. Secretary of State Antony Blinken. According to a U.S. official, China has decided to seize Taiwan on a "far speedier timeframe" than previously expected. Finally, the risk gauge, the S&P 500 futures, is up around 1.70% so far, while Asian indices are up 1.20% to 1.80%, powered by a resurgence in Chinese stocks.


The Euro gave up its gains early today after it advanced 1.22% yesterday. As a result, the common currency dropped from a near two-week high as investor sentiment was impacted by news that a quantitative tightening delay by the Bank of England was 'inaccurate.' In other news, the European Central Bank is set to raise interest rates by 75 basis points at its October meeting, despite the fact that a recession is looming. Both Bundesbank President Nagel and Dutch Central Bank Chief Knot stated that quantitative tightening should begin soon. Furthermore, Vice-President de Guindos stated last week that the central bank is prepared for a technical recession accompanied by rising inflation.


The British Pound fell on Tuesday after climbing 1.7% the day before as the Bank of England shattered hopes for another delay in the sale of government bonds. According to the news, the Bank of England was set to push out the start of its government bond sales from the planned date of October 6th to the latest anticipated date of October 31st. Meanwhile, markets are still digesting the repeal of nearly all of the tax cuts outlined in the mini-Budget. The company tax will climb to 25% from 19% next year, while the basic rate of income tax will continue at 20% eternally until circumstances allow it to be reduced, and the energy price guarantee will remain unchanged between now and April of next year.


The Japanese Yen has continued to fall today and is currently down 0.11% for the day. The increased risk appetite resulted from a big overnight surge on Wall Street, as robust earnings reports and the cancellation of proposed tax cuts in the UK raised mood. Additionally, positive corporate outlooks for domestic corporations boosted stocks, with a weaker Yen expected to enhance profitability in export-heavy Japanese industries. However, significant losses in the currency, which dropped to a new 32-year low, fuelled fears of further intervention.


The Canadian dollar rose more than 1.2% from a two-year low after the third-quarter Business Outlook Survey report. The report revealed that inflation expectations remain high, with 77% of firms expecting price growth to remain above 3% for the next two years, bolstering the case for additional rate hikes by the Bank of Canada. The Bank of Canada hiked its benchmark rate by 75 basis points in September, and markets anticipate another 50 basis point increase to 3.75% at its October 26th meeting. Inflation predictions among businesses increased to 7.11% in Q3 from 6.82% in Q2, with the CPI expected to be 5.22% in two years. According to the report, the majority of consumers foresee a recession in the next 12 months. In today's session, the Loonie has given up some of its gains due to the resurgence of dollar strength. Housing starts, and broader market news will provide new momentum going ahead for the day.


The Mexican Peso rose for the third time in four days, benefiting from a lower global risk environment as U.S. Treasury yields fell and 98% of S&P 500 companies rose. More of UK Prime Minister Liz Truss' unfunded tax cuts were overturned, providing relief to risk assets around the world. Also, according to a London-based trader, most investors still favor buying the Peso because the combination of high carry and moderate volatility is quite appealing. In today's session, the Peso appears to be losing ground against the greenback. Due to the lack of important economic news, the Peso is at the mercy of the dollar and broader market sentiments throughout the day.


China's Yuan was little changed on Tuesday, aided by a consistent midpoint fixing and supporting policies, but experts warn downside pressures are rising amid an increase in Covid cases and data delays, which have fueled fears of economic deterioration. Analysts believe the People Bank of China's consistent fixing is intended to stabilize the Tuan during the week-long Communist Party Congress, which began on Sunday. Furthermore, China's state banks increased their intervention to safeguard the Yuan, banking sources told Reuters on Monday. Still, the Yuan may resume its drop against the dollar, and worries are reinforced by China's deferral of important economic data, particularly the much-anticipated third-quarter GDP figures.


The Brazilian Real closed 0.81% higher yesterday, indicating a respite in the currency's global rush to safety, as investors assessed the presidential debate from the day before, less than two weeks before the second round of voting. On the statistical front, the Central Bank reported that Gross Domestic Product (GDP) fell by 1.13% in August compared to the previous month. It was the largest monthly decline since March 2021, when it fell 3.6%. The negative outcome also ended the indicator's two-month expansion. Investors are also keeping an eye on electoral developments as the race for the second round between Bolsonaro and Lula tightens.


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