- 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
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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 0.96-0.98 GBP/USD 1.09-1.14 USD/CAD 1.37-1.4 AUD/USD 0.62-0.63 USD/JPY 145.4-148.9 USD/CNH 7.15-7.24 USD/ILS 3.52-3.6 USD/MXN 19.9-20.2 USD/CHF 0.99-1.01 USD/INR 82.1-82.4 USD/BRL 5.18-5.38 USD/SGD 1.42-1.44 USD/DKK 7.58-7.72 USD/SEK 11.2-11.5 USD/NOK 10.5-10.9
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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.
GBPMarket 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.
EURMarket 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.
CADMarket 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/PACIFICCNH/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%
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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