Daily Market Pulse

Dollar attempts to stabilize

USD

The dollar index advanced on Wednesday, underpinned by expectations that the Federal Reserve will raise borrowing costs and keep interest rates low until inflation returns to its 2% objective. Investors also took note of the Reserve Bank of New Zealand's hawkish signals, which opposed the Reserve Bank of Australia's dovish hints and reminded markets that many central banks continue to prioritize the fight against inflation. Meanwhile, the dollar has fallen about 2% in the last two days, as weak U.S. economic data and Australia's smaller-than-expected rate hike encouraged expectations that the U.S. Federal Reserve will decrease the pace of rate hikes. Dollar demand has also weakened in recent sessions as the UK government scaled back proposed plans that shook financial markets.

EUR

The Euro is slipping after gaining more than 1.6% yesterday. The recent dollar strength and cautious risk sentiment are weakening the common currency. Meanwhile, early morning data showed that the S&P Global Composite PMI for the Eurozone was revised down to 48.1 in September 2022 from a preliminary of 48.2, extending the downturn into a third straight month and indicating the steepest decrease in output since January 2021, according to the most recent data releases. In other news, employment growth slowed further in September, showing a dearth of new work and a sustained reduction in the quantity of outstanding business. Cost pressures have increased for the first time since March, owing mostly to significantly rising energy costs and higher wages.

GBP

Following a 1.35% gain yesterday, the British Pound is losing steam this morning. The latest data showed that the S&P Global/CIPS UK Services PMI was revised up to 50 in September 2022 from 49.2 earlier today, indicating that the services sector averted a contraction in Q3. Nonetheless, it is the lowest reading in 19 months, indicating a loss of momentum in the face of dropping volumes of incoming new work. Meanwhile, company expectations for the coming year fell to their lowest level since May 2020, as the energy crisis, global recession fears, and rising interest rates all weighed on business confidence. In other news, investors dialed back their expectations for a dovish turn by major central banks and remained cautious ahead of the commentary from the Bank of England.

JPY

The Japanese currency is falling after closing at 0.29% yesterday. The Yen is currently being hampered by the cautious mindset. Meanwhile, the Jibun Bank Japan Composite PMI was 51.0 in September 2022, up from 50.9 in August and a final 49.4 in July. This was the strongest score since June, indicating a resumption of growth in Japan's private sector. In addition, employment increased for the 20th consecutive month, despite backlogs becoming the greatest in three months. As a result of rising raw material, gasoline, and wage costs, as well as a drop in the yen, input prices and selling charges increased at a faster rate. Finally, sentiment reached a three-month high, as many providers anticipate fewer pandemic constraints, allowing for a more sustainable recovery.

CAD

After gaining 0.81% yesterday, the Canadian dollar is losing steam. Growing concerns about the macroeconomic background prompted investors to bet on the Fed slowing the pace of aggressive monetary tightening, which boosted the Loonie. The currency was also bolstered by the expectation of a reduction in oil production. Market investors will also be watching for headlines from the OPEC meeting. Oil prices rose later today as reports suggested the group could reduce output by up to 2 million barrels per day. In other news, the West Texas Intermediate (WTI) crude oil price increased over 4% on Tuesday, following a 5% gain on Monday, and was last seen trading near $86 today.

MXN

The Mexican Peso rose (0.31%) for the third day in a row, drawing cues from a more bullish global risk environment amid growing speculation that global central banks could ease off on their aggressive policies. Mexican swaps fell more on Tuesday, reflecting a stronger peso and lower U.S. Treasury yields. The TIIE curve anticipates 120bps rate rises in the rest of 2022, raising the policy rate to slightly under 10.50%. In other news, after completing the minimum time period allowed for talks under their trade agreement, the Biden administration will continue consultations with Mexico on the country's energy strategy rather than immediately demanding arbitration.

CNY

China's markets are closed till October 10 in observance of Golden Week. The People's Bank of China has recently instructed state-owned banks to prepare to support the yuan in offshore markets. In September, the PBoC increased the foreign exchange risk reserves for financial institutions, making it more expensive to bet against the local currency, and reduced the foreign exchange reserve requirement from 8% to 6%. Meanwhile, downside risks to the yuan remain as China's monetary policy diverges from that of the United States and a bleak internal economic outlook dampens demand for Chinese assets.

BRL

The Brazilian Real closed 0.19% down yesterday, with investors adjusting positions following the U.S. currency movements and keeping an eye on domestic election news following the outcome of the first round of presidential elections. Several experts have cited the Real as one of the world's most resilient currencies in the face of a terrible international scenario, with markets predicting a recession as the world's major central banks hike interest rates to contain inflation. Another aspect mentioned as a buffer for the local currency is the high level of the Selic rate, which the Central Bank maintained at 13.75% at its most recent monetary policy meeting.

 

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