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    • Foreign Exchange Advisory
    • FX Update

    Hawkish central bank policymaking imbalances US dollar superiority

    Joe Brigati Headshot
    Joe Brigati
    • July 25, 2022

    Until evidence of near-bottoming economic data or a pivot by the Fed towards dovish policy materializes, further downside for risky assets remains an intact consensus. Removal of explicit forward guidance from central banks worldwide burgeons a new world of volatility and eliminates shelter from hedging costs. Reactionary policymaking dependent on productivity and inflation results has supported a broad-based USD move, but secular currency performance will likely skew results in a post-negative interest rate era.

    Economic Data:
    Wednesday: FOMC Rate Decision
    Thursday: US GDP, AUS CPI
    Friday: Canada GDP, Euro-area CPI

    • 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 range1.0064-1.0278
      GBP range1.1860-1.2064
      CAD range1.2823-1.3038
      AUD range0.6786-0.6977
      JPY range135.57-138.88
      CNH range6.7359-6.7880
      ILS range3.4281-3.4671
      MXN range20.3180-20.7236
      CHF range0.9600-0.9790
      INR range79.70-80.0638
      BRL range5.3533-5.5142
      SGD range1.3854-1.4019
      DKK range7.2432-7.3930
      SEK range10.1490-10.5198
      NOK range9.8732-10.2451

    • USD

      The Federal Reserve faces a difficult balancing act as it attempts to bring price pressures under control without pushing the economy into a recession. Money market traders have scaled back bets of an aggressive full point rate hike at Wednesday’s FOMC meeting with Fed officials cautious of a potentially waning labor market and faltering consumption levels. Until Fed hawkishness dampens and global growth concerns ease, the familiar narrative of “king dollar” will likely continue to hamper the comeback of higher-beta currencies.

      GBP

      Political turbulence, high inflation, and a large deficit are all factors exacerbating sterling’s more than 11% drop against the dollar this year. Regardless of whom is selected to succeed Boris Johnson as Britain’s next Prime Minister, they will inherit economic wounds which will be difficult to heal. Last Wednesday’s record inflation print coupled with languishing consumer confidence leaves the BOE teetering between aggressive rate hikes and accommodative policy at their next meeting on August 4.

      EUR
      For the first time since 2011, the ECB unexpectedly raised interest rates by half a percent to end an era of negative rates. By front loading rate hikes and introducing the Transmission Protection Instrument (TPI), a bond purchase program intended to prevent borrowing costs of euro nations from diverging excessively, the ECB reveals the bloc’s fragility. Italian PM Draghi’s resignation, shortly before the ECB meeting, will test the newly unveiled TPI and adds to the eurozone’s running list of uncertainties. Amongst these risks, despite some reprieve from the Nord Stream pipeline coming back online, is an energy crisis as Russia plans to annex regions of Ukraine. 
      CAD

      A week following Bank of Canada’s full percentage point interest rate increase, consumer price gains accelerated to the highest level in almost forty years. Retail sales volumes shared last week were up more than anticipated, but real GDP data to be released this Friday, also for May, is on track for a slight decline. Although helpful, previous month’s data fails to test the economy’s wherewithal for tighter monetary policy.

      ASIA/PACIFIC

      Japan’s key inflation gauge climbed further above the BOJ’s target level of two percent, an outcome that challenges Governor Kuroda’s commitment to ultra-low interest rates. Regardless of continued price gains, policymakers remain unconvinced of sustainable inflation. The government is closely monitoring possible negative impacts to household spending power; Thursday’s Retail Sales figure may serve as a bellwether.
      Australia is expected to produce a multi-decade high inflation reading on Thursday which will likely pressure the RBA into an upsized rate increase at their next meeting on August 2.

      USD Performance YTD
      Country Value vs USD
      Canadian Dollar -0.85%
      Australian Dollar -3.17%
      Swiss Franc -4.60%
      Euro -9.32%
      British Pound -10.45%
      Japanese Yen -15.35%
    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.

    Joe Brigati
    WRITTEN BY
    Joe Brigati
    • View Author Profile
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