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    • Foreign Exchange Advisory
    • FX Update

    FX Weekly: Fed pivot off the table as inflation climbs to 40-year high

    Chandler White Headshot
    Chandler White
    • October 17, 2022
    • Higher than expected US CPI data sets the stage for continued aggressive rate hikes for the foreseeable future.
    • Despite higher prices across nearly every industry, the 50-year low 3.5% unemployment rate and high consumer demand puts even more pressure on the Fed to do more to curb inflation.
    • Focus this week, worse than expected housing data could indicate impending economic downturn.

    Key data/events for this week: 

    Tuesday: Industrial Production MoM

    Wednesday: MBA Mortgage Applications, Housing Starts, Fed’s Beige Book, CPI YoY (UK, Eurozone, Canada)

    Thursday: Existing Home Sales, Leading Index

    Friday:
    Bank of Italy’s Quarterly Economic Bulletin

    The US has set the tone for global monetary policy with aggressive interest rate hikes, propping up the dollar to close to 20-year highs. Other central banks must keep up, or risk further devaluation of their currency.
    • 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/USD0.96-0.98
      GBP/USD1.09-1.14
      USD/CAD1.37-1.4
      AUD/USD0.62-0.63
      USD/JPY145.4-148.9
      USD/CNH7.15-7.24
      USD/ILS3.52-3.6
      USD/MXN19.9-20.2
      USD/CHF0.99-1.01
      USD/INR82.1-82.4
      USD/BRL5.18-5.38
      USD/SGD1.42-1.44
      USD/DKK7.58-7.72
      USD/SEK11.2-11.5
      USD/NOK10.5-10.9

    • USD

      Market Bias: Hawkish

      • USD-focused news dominated markets last week as several economic releases bolstering inflationary concerns rattled global markets.
      • US PPI rose 0.4% MoM from August, indicating inflation will continue to be a top priority for the Fed.
      • US CPI is 8.2% YoY, practically guaranteeing a 75bps rate hike in November.
      • US mortgage rates rose to 6.92%, the highest in 20 years.
      • Risk to current market bias: The Fed could slow down or stop raising rates next year if economic data threatens a recession, bringing the dollar lower.
      GBP

      Market Bias: Bearish

      • The UK gilt buying program ended last Friday, indicating the central bank is withdrawing market support. The pound fell 2% upon the announcement.
      • Truss’s tax cut plan announcement caused widespread concerns that inflation would become even worse.
      • Lots of conflicting information out of the BOE and UK government has stoked high pound volatility as investors lose confidence.
      • Risk to current market bias: Truss firing the finance minister behind the tax cut plan and more news of policy reversal has already erased last week’s losses. Similar news could result in gains or reduced pound volatility.
      EUR

      Market Bias: Bearish

      • EUR fell 1.1% last week upon the release of US CPI data.
      • Pierre Wunsch of the ECB said rates will “most probably” need to exceed 2% by year-end. The ECB’s current deposit rate is 0.75%.
      • The IMF forecasts just a 0.5% increase in growth for 2023 for the Eurozone, the weakest outlook amongst global regions. Germany and Italy are forecasted to see declines.
      • Risk to current market bias: Higher than expected rate increases by the ECB or positive news related to economic data or the war in Ukraine could bring EUR higher.
      CAD

      Market Bias: Bearish

      • CAD jumped up close to 1.40 last week upon news of US inflation before cooling back down to 1.37 levels.
      • Manufacturing sales in September were down 2% in Canada compared to August - worse than expected.
      • US interest rates are expected to rise faster than Canada’s interest rates, so it is now more expensive for buyers of CAD to hedge.
      • Risk to current market bias: Continued rate hikes and a better than expected Canadian CPI reading this week could strengthen CAD.
      ASIA/PACIFIC

      CNH/CNY

      Market Bias: Bearish

      • China’s central bank has indicated they aren’t planning any heavy-handed intervention to control the yuan, instead letting the market drive yuan rates, despite 14-year lows against the USD.
      • Risk to current market bias: Some relief of the zero COVID policy and a positive reading on the trade balance reading this week could bring CNH higher, although this is not expected.

      JPY

      Market Bias: Bearish

      • Unlike China, Japan could intervene to prop up the yen again like last month, since JPY has weakened further past the last level that triggered the intervention.
      • Risk to current market bias: So far Japan has kept rates steady at -0.10%. Any increase to rates has potential to bring JPY higher, but as of now BOJ Governor Kuroda says this “isn’t necessary.”
      Performance relative to common FX Budget Rate:
             
        Average Rate for 2021 Current Spot    Current Spot vs 2021 Average
      AUD 0.7513 0.6285 -16.3%
      CAD 1.2537 1.3728 -9.5%
      CHF 0.9143 0.9965 -9.0%
      CNH 6.4506 7.1926 -11.5%
      EUR 1.1828 0.979 -17.2%
      GBP 1.3757 1.1357 -17.4%
      JPY 109.85 148.72 -35.4%
    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.

    Chandler White
    WRITTEN BY
    Chandler White
    Chandler White is a foreign exchange (FX) advisor for Silicon Valley Bank on the corporate team, based in Los Angeles, California
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