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    • Foreign Exchange Advisory
    • FX Update

    FX Weekly: Aggressive tightening by the Fed is having impact on the economy

    • October 31, 2022
    • US manufacturing and services PMI came in weaker than expected and demand for labor is showing signs of cooling, but it hasn’t damped rate hike expectations for this week.
    • Sales of new homes decreased 10.9% as mortgage rates rose to 7.16%, highest since 2001.
    • US GDP rose 2.6% and obscures continued signs of slowdown.
    • US Employment Costs rose 5% in third quarter from year ago.

    Key data/events for 10.31.22 to 11.04.22 

    Tuesday: Jolts US Labor Market, US MFG PMI; UK MFG PMI; Canada MFG PMI

    Wednesday: FOMC rate decision; EU MFG PMI; China PMI

    Thursday: US - Existing Home Sales, Jobless Claims US PMI; BoE rate decision; EU Unemployment rate; Japan PMI

    Friday: US – Unemployment Rate, Nonfarm & MFG Payroll; UK Construction PMI; EU Service and Composite PMI; Canada Unemployment Rate
    • FX Rates
      Last Week's Range

      Rates 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/USD0.98-1.01
      GBP/USD1.12-1.16
      USD/CAD1.35-1.38
      AUD/USD0.63-0.65
      USD/JPY145.1-149.7
      USD/CNH7.17-7.37
      USD/ILS3.48-3.57
      USD/MXN19.8-20
      USD/CHF0.98-1
      USD/INR82.1-82.8
      USD/BRL5.17-5.39
      USD/SGD1.4-1.43
      USD/DKK7.37-7.58
      USD/SEK10.8-11.3
      USD/NOK10.2-10.6

    • USD

      Market Bias: Fed Hawkish

      • Speculations that Fed may stop the aggressive tightening as mortgage applications declined by 1.7% and September Good Trade Balance posted a deficit of $92.2B, yet the better than expected GDP numbers may convince the Fed to keep the 75bps rate hike in place.
      • Markets selling the dollar as US bond yields keeps giving up ground and stocks extend their gains.
      • Wholesale Inventories rose and new home sales declined by 10.9% in September.
      • Fed is likely to view the weaker components due to the tightening of monetary policy, but not the reason to back off.
      • Risk to current market bias: While the Fed is still set to raise interest rates next week, the slowdown is adding to the growing narrative that it may be approaching the end of its aggressive tightening.
      GBP

      Market Bias: Bullish

      • Last week GBP rallied above 1.16 due to the confidence in UK’s new PM Rishi Sunak.
      • Sunak may delay the announcement of a fiscal plan on October 31, to mid-November.
      • Wages fell at the sharpest pace since 2010 and adding pressure on the central bank to rein in price increases.
      • Risk to current market bias: Gilts continue to slide, and BoE is less hawkish to rate increase.
      EUR

      Market Bias: Bearish

      • EUR surpassed parity with the dollar to hit five-week high.
      • ECB raised rate by 75bps and commented that future rate hike decisions  will be on a meeting-by-meeting basis.
      • Just like the Fed, ECB fighting inflation aggressively, but worried about recession.
      • Germany’s consumer prices jumped 11.6% in October from a year earlier.
      • Potential slower rate hikes after Canada’s less hawkish rate hike.
      • Risk to current market bias: Lower than expected consumer prices and higher than expected inflation could lower the EUR including a less hawkish ECB.
      CAD

      Market Bias: Bearish

      • BoC delivered less than expected 50bps rate hike, risking downward pressure on the currency and easing financial conditions.
      • Recession fears are looming as BoC pivoted to a less hawkish rate hike.
      • OPEC seems to want the price of oil to be around $100/bb, and supply may be tightened to keep oil at this price helping the loonie with some resilience against the USD.
      • Risk to current market bias: Less hawkish Fed rate hikes and tightening on oil supply could help CAD become more bullish.
      ASIA/PACIFIC

      CHN/CNY

      Market Bias: Bearish

      • Widening yield gap with the US is already weakening the currency.
      • PBOC’s next move is likely to be a rate cut in Q1 2023.
      • Lock downs due to COVID are still lingering in China, most recently in a central district of Wuhan.
      • Risk to current market bias: Fed slows down rate hike, and COVID lockdowns are in the rear mirror.

      JPY

      Market Bias: Bearish

      • Japan’s interest rate will likely be left at -0.1%, despite inflation standing at 3% YoY
      • Current monetary policy was put in place until inflation reached a 2% target. Japan has experienced 3% inflation since August 2022.
      • Risk to current market bias: Inflation drops, and BoJ keeps intervening by buying bonds.

      Performance relative to common FX Budget Rate:



       

      Average Rate for 2021

      Current Spot   

      Current Spot vs 2021 Average

      AUD

      0.7513

      0.6287

      -16.3%

      CAD

      1.2537

      1.3793

      -10.0%

      CHF

      0.9143

      0.9983

      -9.2%

      CNH

      6.4506

      7.1667

      -11.1%

      EUR

      1.1828

      0.9708

      -17.9%

      GBP

      1.3757

      1.1068

      -19.5%

      JPY

      109.85

      145.69

      -32.6%

    Contact Us

    For more analysis on FX markets or information regarding SVB's FX services:

    Contact your respective SVB FX Advisor or the SVB FX Advisory Team at GroupFXRiskAdvisory@svb.com.
    See all of SVB's latest FX information and commentary at www.svb.com/foreign-exchange-advisory

    Subscribe to receive FX updates to your inbox.


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     Source: Bloomberg
     

    This article is intended for U.S. audiences only.

    ©2023 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB). SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license.

    The views expressed in this email are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

    Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal, accounting and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources.

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