Daily Market Pulse

Dollar mute ahead of Fed’s decision

USD

The U.S. dollar index struggled on Wednesday morning as investors remained on the sidelines ahead of the Federal Reserve's highly anticipated policy decision. While the Fed is widely expected to raise interest rates by another 75 basis points on Wednesday, markets will be focused on its forward guidance in light of recent speculation that the Fed may slow down beginning in December. Meanwhile, better-than-expected ISM manufacturing and JOLTS data indicated that prior rate hikes had not dampened economic momentum, keeping the Fed on track to remain aggressive. The dollar fell across the board, with the most dramatic selling against the Yen as investors worried about further currency intervention as Bank of Japan Governor Haruhiko Kuroda hinted at a probable shift in yield curve control policy.

EUR

The Euro is benefiting from the dollar's weakening today as the market awaits the Fed's policy statement. Meanwhile, new data from the bloc show that the S&P Global Eurozone Manufacturing PMI was revised marginally lower to 46.4 in October 2022 from a preliminary of 46.6, indicating a fourth consecutive month of declining factory activity and the largest contraction since May 2020. In other news, previous data indicated that consumer prices in the currency bloc rose to a new high of 10.7% in October, exceeding estimates of 10.2% and putting additional pressure on the European Central Bank as the need for tighter monetary policy weighs against growing economic concerns.

GBP

The Pound sterling is continuing to rise today as the market remains calm ahead of the Fed's expected policy speech. Meanwhile, the yield on Britain's 10-year gilt was below 3.5%, close to six-week lows. The nomination of Rishi Sunak as the new Prime Minister of the United Kingdom restored some market confidence that had been shaken by former Prime Minister Liz Truss' tax-cut promises. Meanwhile, the Bank of England began selling UK gilts amassed over a 13-year-old stimulus program, and the first auction on Tuesday saw strong interest. The central bank announced on Tuesday that it sold GBP 750 million in gilts maturing between 2026 and 2029 at an auction. More auctions are scheduled to take place until December. In other news, the Bank of England is set to raise interest rates by 75 basis points on Thursday, following the return of inflation to 40-year highs in September.

JPY

The Japanese Yen rose against the dollar today as Bank of Japan Governor Haruhiko Kuroda hinted at a possible change in yield curve control policy. Traders also remained wary amid rumors that the Japanese government may again intervene in currency markets as the U.S. Federal Reserve prepares to hike interest rates. Finance Minister Shunichi Suzuki stated that the government is concerned about the Yen's steady depreciation because it boosts the cost of living through higher import expenses. Japan's finance ministry reported that it spent approximately $43 billion to strengthen its currency from September 29 to October 27. Nonetheless, the Yen was under pressure due to a growing policy divergence as the BOJ maintained its ultra-low interest rate policy.

CAD

After losing 0.04% yesterday, the Canadian dollar regained traction today. Investors got increasingly convinced before the Fed's monetary policy statement that the Fed will pivot in December and are looking for indicators during the FOMC meeting later today. Meanwhile, the S&P Global Canada Manufacturing PMI decreased to 48.8 in October 2022, down from 49.8 in September, representing the third consecutive month of manufacturing activity decline. The drop in performance mirrored steep and accelerating declines in output and new orders, while enterprises reported a continuous shortage of competent personnel. Elsewhere, West Texas Intermediate oil futures were trading around $88.30 per barrel, down from their day highs of $89.70, which might cap the further upside for Loonie.

MXN

The Mexican Peso is rising, extending its gains from yesterday. Positive momentum is being built on expectations for a slower monetary policy tightening pace from the Federal Reserve starting in December. Meanwhile, new data revealed that the S&P Global Mexico Manufacturing PMI remained constant in October 2022, at 50.3, the same as in September, indicating continued modest expansion in industrial activity. Although new orders and output were the lowest in four months, inflationary pressures, cashflow issues, and material shortages impacted client demand. In addition, Mexico's seasonally adjusted manufacturing confidence index fell to 49.8 in October 2022 from 50.2 the previous month.

CNY

The Chinese Yuan is edging down, down 0.07% on the day against the U.S. dollar. The current bearish pressure is the result of investors continuing to evaluate an unsubstantiated social media post claiming that Chinese authorities are planning to abandon Covid Zero. However, a spokeswoman for China's foreign ministry claimed he was unaware of such a proposal. Meanwhile, investors remained cautious ahead of the U.S. Federal Reserve's major interest rate decision, with markets focusing on the central bank's future tightening intentions.

BRL

In today’s morning, the Brazilian real was trading near its highest level since late September, following the election of Luiz Inácio Lula da Silva as the country's next president in a close run-off against incumbent President Jair Bolsonaro. Given the narrow margin of victory, the market expects Lula to be pragmatic and pursue a more centrist approach. Meanwhile, Bolsonaro broke his quiet after his defeat and stated that he will obey Brazil's constitution. In terms of monetary policy, Brazil's central bank began hiking interest rates in March 2021, pushing borrowing costs to a peak of 13.75% in August. As a result, Brazil's annual inflation rate fell from 12.1% in April to 7.2% in September 2022.

 

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