- Last week several Federal Reserve policymakers dashed hopes of a pause in tightening cycle providing support to USD
- GBP/USD fell -1.3% to 1.1764 as the market didn’t respond well to the autumn statement made by Chancellor Jeremy Hunt as he tried to plug the GBP 55B fiscal gap through tax increases and spending cuts
- Canadian dollar shows resiliency despite the price of oil falling 12% over the past week
Data/Events Calendar 11/20 – 11/25
(slow US economic news due to Thanksgiving Holiday)
Tuesday (11/22) – Canada Retail Sales, Eurozone Consumer Confidence
Wednesday (11/23) – US Durable Goods Orders; S&P Global Manufacturing PMI; New Home Sales, Univ. of Mich. Sentiment
Thursday (11/24) – German IFO Business Climate index
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/USD 1.03-1.05 GBP/USD 1.17-1.2 USD/CAD 1.32-1.34 AUD/USD 0.66-0.68 USD/JPY 137.7-140.8 USD/CNH 7.02-7.18 USD/ILS 3.4-3.48 USD/MXN 19.3-19.6 USD/CHF 0.94-0.96 USD/INR 80.5-81.8 USD/BRL 5.26-5.53 USD/SGD 1.36-1.38 USD/DKK 7.1-7.24 USD/SEK 10.3-10.7 USD/NOK 9.9-10.2
Federal Reserve: Hawkish
- US Treasuries slumped and stock prices declined last week as traders adjust their expectations to the Fed indicating it will continue to raise rates to tackle inflation
- Hawkish speeches from several Fed Reserve policymakers dashed hopes of a pause in tightening cycle
- Initial US Jobless Claims unexpectedly decline in week ending Nov 12; labor market is bracing for possible increased jobless claims heading into end of 2022 as companies forecast difficult times ahead
- Risk to current market bias: A loosening labor market with a continued slowing economy will give the Fed room to dial down future rate hikes
- Last week the UK outlined GBP55B in tax increases and spending cuts, furthering negative sentiment about the near-term economy, imposing further pain on consumers and businesses, and hurting the outlook for GBP
- UK bond market under pressure as anticipation of record debt coming due next year
- Moody's anticipates government debt will remain about 100% of GDP in coming years
- Risk to current market bias: British pound often tracks closely with the euro so any lift to the euro could have a strong positive knock-on effect with GBP
- European Central Bank (ECB) indicates probability of a recession is 80% putting pressure on long euro positions
- Eurozone Gross Domestic Product (GDP) grew by 0.2% in Q3 over prior quarter – this follows a 0.7% growth in Q2 – representing very weak growth and signaling a possible contraction in Q4
- With US signs of inflation possibly cooling, a selloff of USD vs EUR has taken place, but investors are pressed to believe this is long lasting
- Eurozone CPI eased to 10.6% from 10.7% expected and ECB officials seem to be leaning towards slower pace of +50bps hike at the 15 Dec meeting.
- Risk to current market bias: Any indication the Eurozone economy is stronger than expected and inflation is softening. Also, any real prospect of peace in Ukraine.
- The loonie continues to follow the global market trends in the absence of domestic data
- Oil prices fell 12% since last Monday and CAD slipped only 1% vs. the US dollar suggesting investors believe the price of oil will stabilize
- Bank of Canada meets 12/7 and a 25bps hike to 4.0% is expected
- 30% of Canadians surveyed said they would be reducing their holiday spending ‘substantially’ as inflation remains high
- Risk to current market bias: Global recession puts significantly more downward pressure on commodity prices and CAD
JPY (Japanese yen)
Market Bias: Bearish
CNH/CNY (Chinese yuan)
- The yen remains under pressure from a widening policy divergence from the Fed and other central banks – a continued depreciating currency remains a top concern as it raises prices on imported goods
- Less than 50% chance that BOJ will make an explicit rate hike in 2023 due to a bleak economic outlook
- Government puts no pressure on BOJ to rate hike as they prefer low interest rates to finance government debt
- Risk to current market bias: The JPY may return to being a safe-haven currency, especially with the central bank intervening directly in FX markets to protect the JPY
Performance relative to common FX Budget Rate:
- Chinese renminbi gave back some of prior week gains after mixed messages on Zero-COVID restrictions confused investors
- China’s exporters slowed conversion of foreign currency proceeds last month, weakening support for the yuan amid growth headwinds
- A net deficit of $730MM was recorded last month in currency deals related to goods trading; the biggest since Feb 2016 – this in contrast to a trading surplus the prior month, suggesting a bearish outlook for yuan as dollars become the preferred currency to hold
- Risk to current market bias: Pivot away from the restrictive COVID prevention measures and/or a reduced Fed rate hike path
Average Rate for 2021 Current Spot Current Spot vs 2021 Average AUD 0.7513 0.6615 -12.0% CAD 1.2537 1.3457 -7.3% CHF 0.9143 0.9572 -4.7% CNH 6.4506 7.165 -11.1% EUR 1.1828 1.0252 -13.3% GBP 1.3757 1.1817 -14.1% JPY 109.85 141.51 -28.8%
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
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