- August US core CPI (Consumer Price Index, a measure of inflation) increased 0.6% MoM vs. forecast 0.3% leading to a surge in USD and selloff in equities (see table below of current spot rates relative to popular 2022 FX Budget Rates).
- Terminal rate for the Federal Reserve increases from 4% by Q1 2023 to 4.5% as markets remain in data dependent mode.
- A rally in the pound and euro fades after brief hope of peace in Ukraine. Russia loses territory to Ukraine while China and India show no support for Putin’s war.
- In Focus: Wednesday’s FOMC (Federal Open Market Committee, the body in the US tasked with interest rate determination) meeting and press conference with markets looking for clues from the Fed regarding how high the Fed Funds rate may reach over the coming year.
Data/Events Calendar 9/19 – 9/23
Tuesday: Canadian CPI, Japan CPI, US Housing Starts, Swedish central bank meeting
Wednesday: FOMC rate decision, US Existing Home Sales
Thursday: Bank of Japan meeting (possible verbal intervention), Bank of England meeting
Friday: Canadian Retail Sales, Eurozone Manufacturing PMI
“In the current environment, you have to play defense and stay with best of breed, so the USD should continue to shine on the back of safe haven demand and expectations that the US economy could withstand these outsized rates tightening better than anyone else.“
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FX Rates
Last Week's RangeRates are not real time. Rates are today's indicative mid-market rates as of time of publishing, which may vary. Please contact SVB for a current quote.
EUR/USD 0.99-1.02 GBP/USD 1.14-1.17 USD/CAD 1.29-1.33 AUD/USD 0.67-0.69 USD/JPY 142-145 USD/CNH 6.91-7.04 USD/ILS 3.35-3.45 USD/CHF 0.95-0.97 USD/INR 79-80 USD/BRL 5.08-5.31 USD/SGD 1.39-1.41 USD/DKK 7.29-7.48 USD/SEK 10.41-10.82 USD/NOK 9.78-10.29
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USD
Market Bias: Hawkish/stronger
- Dollar starts last week with heavy losses only to set new highs vs. some currencies later in the week. Higher than expected inflation data and safe haven buying drive strength in USD.
- The US narrowly avoided a rail strike which could have cost the economy upwards of $2B/day.
- Bellwether transport stock, FedEx, issues profit warning sending equities lower. Portends for more earnings write-downs, more risk-off sentiment and more safe haven dollar buying.
- Risk to current market bias: Any indication by Federal Reserve that they would stop raising rates when Fed Funds hits 4% could send dollar lower.
GBPMarket Bias: Bearish/weaker
- UK CPI inflation data came in at 9.9%, a drop from last months 10.1% but core inflation rose to 6.3% from 6.2% the prior month.
- UK Retail Sales for August fell 5.4% after a 3.1% fall in July as consumer confidence turns negative for first time since the pandemic.
- Bank of England meets Thursday with markets split as to whether there will be a hike of 0.50% or 0.75%.
- Risk to current market bias: National mourning for Queen Elizabeth II will likely cause the UK to tip into a technical recession - after which consumer spending may surge.
EURMarket Bias: Bearish/weaker
- The Federal Reserve is seen raising interest rates faster than the European Central Bank (ECB) creating a drag on the euros performance.
- The ECB’s Holzmann said inflation could remain at 3%-4% for the next 5 years.
- The European Union’s plans to intervene in energy markets and curb power consumption may provide support to the economy, however, the common currency still lags US dollar.
- Risk to current market bias: Parity with the dollar is proving a strong support level for the euro. Any positive news on the war, energy supply or the European economy could see investor sentiment turn euro positive quickly.
CADMarket Bias: Bearish/weaker
- CAD weakened last week and this morning as a worse inflation/stagflation scenario emerged. CPI tomorrow could cause significant volatility in either direction.
- Expected economic slowdown and strong USD send the loonie toward 1.34. Market focus seems to have shifted from headline CPI to core CPI.
- The oil rally that helped support the loonie may have turned as weak economic indicators sap expected energy demand.
- Risk to current market bias: The Canadian central bank has led most other central banks with rate increases – they may talk very hawkish should tomorrow’s CPI come in hotter than forecast.
ASIA/PACIFICJPY
Market Bias: Bearish/weaker
- The yen rallied last week after Finance Minister Suzuki won't rule out any one response – including FX market intervention, should weaker yen trend continue.
- Bank of Japan (BOJ) cap on 10yr JGBs at 0.25% results in pressure on yen.
- Tomorrow’s release of CPI for August forecast 2.9% up from last month’s 2.6%.
- Risk to current market bias: The BOJ meets Thursday - while stronger intervention to strengthen the yen seems unlikely it cannot be ruled out.
CNY/CNHMarket Bias: Bearish/weaker
- Yuan broke above 7 last week for first time in two years, but vs. basket of currencies the yuan is more stable.
- Chinese officials set daily fixing significantly stronger as a “warning” to investors not to bet against the yuan.
- China wants a stable currency coming into next month’s Party Congress where President Xi Jinping is expected to get an unprecedented third term.
- Risk to current market bias: Intervention into FX markets by governments seems to have taken place in Thailand and Korea last week. Could China do the same?
Performance relative to common FX Budget Rate:Common FX Rate
Current
Current spot vs.
vs. USD for 2021
Spot
2021 Average
AUD
0.7513
0.6679
-11.1%
CAD
1.2537
1.3335
-6.4%
CHF
0.9143
0.9662
-5.7%
CNH
6.4506
7.0099
-8.7%
EUR
1.1828
0.9985
-15.6%
GBP
1.3757
1.1372
-17.3%
JPY
109.85
143.37
-30.5%
For more analysis on FX markets or information regarding SVB's FX services:
See all of SVB's latest FX information and commentary at www.svb.com/foreign-exchange-advisory
Source: Bloomberg | |
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