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    • Foreign Exchange Advisory
    • FX Update

    FX Weekly: US Non-Farm Payrolls Exceed Forecast, Attention turns to Thursday CPI Reading; Slight Dollar...

    Andrew Rossillon Headshot
    Andrew Rossillon
    • January 9, 2023
    • Markets price in a 5.7% Consumer Price Index (CPI) reading, with the Nov 2022 reading at 6.5%
    • Fed signals rates are nearing a ‘sufficiently high level’
    • 17 of 19 Fed officials project rates to be north of 5% by end of 2023; no cuts forecasted this year
    • Non-Farm payrolls exceed expectations at 223K vs a 175-215K forecast
    • Market saw a rally in equities thinking the Fed may stall the aggressive rate hikes; dollars sold off ~2%

     

    Data and Events this Week 

    Monday – EU Gross Domestic Product (GDP), EU Unemployment Rate, EU Consumer Price Index (CPI)
    Thursday – US CPI data, US Mortgage Applications, US Initial Jobless Claims, CHN Trade Balance Update, CAN Existing Home Sales

    Friday – University of Michigan Sentiment
    • 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/USD1.05-1.07
      GBP/USD1.18-1.21
      USD/CAD1.34-1.37
      AUD/USD0.67-0.69
      USD/JPY129.5-134.8
      USD/CNH6.82-6.94
      USD/ILS3.44-3.56
      USD/MXN19.1-19.5
      USD/CHF0.92-0.94
      USD/INR82.5-82.9
      USD/BRL5.22-5.48
      USD/SGD1.33-1.35
      USD/DKK6.96-7.09
      USD/SEK10.4-10.8
      USD/NOK9.8-10.3

    • USD

      Market Bias : Bearish

      • 2022 focus was on inflation and central bank tightening, but 2023 attention may shift to macro liquidity; recession fears may become more realized if rate hikes dampen economic activities.
      • Non-Farm Payrolls beat forecast by at 235k vs 175 – 215K, but wages did not follow this pattern as sharply, reducing this factor as a contributor to the rate hiking conversation
      • Employment report shows slowdown in wages, this along with softer than expected Purchasing Managers' Index (PMI) causing equities to rally, USD selloff as investors try to take advantage of suppressed equity markets in hopes that the fed reduces its rate hike pattern
      • Fed minutes communicate more hikes on the horizon, but fast approaching a terminal rate
      • Bloomberg Economics forecasts CPI headline print to show deflation, and the monthly pace of core CPI to annualize near Fed’s 2% price target, supporting a halt in rate hikes, and furthering a USD selloff
      • PMI showed a contraction at 48.4 (anything below 50 is a contraction of orders), which may be a contributing sign towards the beginning of a recession
      GBP

      Market Bias : Mixed

      • The Bank of England (BOE) says business leaders see inflation accelerating in years ahead, in addition to wage growth strengthening, adding to concerns about upward pressures on prices.
      • Businesses expect higher interest rates leading to lower investment and employment in the next year
      • A fourth monthly decline in the UK house price index shows that the housing correction rumbled on through December. Annual price gains have continued to decelerate sharply to 2.8% from 4.4% in November.  UK house prices on track to drop 8% this year.
      EUR

      Market Bias : Mixed

      • Euro facing challenges long term; inflation data driving rate hikes causing the likelihood of an economic hard landing to increase
      • Recent 50bps rate hike to tame inflation seen as just the beginning
      • European Central Bank (ECB) to further tighten policy by kicking off balance sheet reduction in March (Quantitative tightening)
      CAD

      Market Bias : Mixed

      • Canadian jobs blew out expectations at +104k vs forecast of +5k
      • Full time employment grew, leading the unemployment rate lower to 5.0% from 5.2%
      • Given the sensitive economic implications of hiking rates too fast, the consensus is to expect a hike around 0-25bps, with +19 being priced in
      ASIA/PACIFIC

      CNH 

      Market Bias : Bullish

      • January tends to be a bullish market for CNH vs USD as conversions take place from USD into yuan three weeks before Lunar New Year to pay for bonuses before workers leave factories for the holiday
      • Strong equity market in Hong Kong providing some of the best returns and outperforming mainland China. This should support a boost in CNH as investors buy onshore stocks in hopes of taking advantage of underperforming opportunities.
      • The government is looking to reopen the HK and China border check points as well as evaluating various ways to boost growth, most specifically in the real estate sector

      ILS

      Market Bias : Bullish

      • A weaker shekel is thought to fuel inflation; Israel joining Japan in trying to manage its currency higher in order to fight inflation
      • Even in the face of a likely recession, Israel is committed to combating inflation with a more expensive currency – this could push Israel into a recession sooner rather than later
      Performance relative to USD:
    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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