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    • Foreign Exchange Advisory
    • FX Update

    FX Weekly: Hawkish Fed comments support further rates increases

    Andrew Rossillon Headshot
    Andrew Rossillon
    • November 21, 2022
    • 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

    • 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/USD1.03-1.05
      GBP/USD1.17-1.2
      USD/CAD1.32-1.34
      AUD/USD0.66-0.68
      USD/JPY137.7-140.8
      USD/CNH7.02-7.18
      USD/ILS3.4-3.48
      USD/MXN19.3-19.6
      USD/CHF0.94-0.96
      USD/INR80.5-81.8
      USD/BRL5.26-5.53
      USD/SGD1.36-1.38
      USD/DKK7.1-7.24
      USD/SEK10.3-10.7
      USD/NOK9.9-10.2

    • USD

      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
      GBP
      • 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
      EUR
      • 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.
      CAD
      • 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
      ASIA/PACIFIC

      JPY (Japanese yen)

      Market Bias: Bearish

      • 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
      CNH/CNY (Chinese yuan)
      • 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
      Performance relative to common FX Budget Rate:

        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%
    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.

    Andrew Rossillon
    WRITTEN BY
    Andrew Rossillon
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