Daily Market Pulse
Treasury Yields Rise to a 16-Year High as Risk Aversion Mounts
5 minute readUSD
The Dollar Index is off to a strong start this week, reaching its highest level since November 2022, as traders flock towards safe-haven assets amidst unease about the global economy. US Treasury yields soared to their highest levels since the 2007-2008 global financial crisis, boosting demand for the Greenback.
On the data front, US building permits increased by 6.8%, reaching the highest level since October 2022, indicating a thriving new construction sector driven by a shortage of homes despite rising mortgage rates.
Later this morning, the latest consumer confidence and new home sales figures are also scheduled for release.
EUR
This week began in familiar territory for the Euro, losing more ground against the Greenback, touching a six-month low in the process.
The European calendar is empty today, leaving the Euro at the whims of risk-driven moves in the Dollar. The real intrigue for Euro traders will be Thursday and Friday's inflation data from across the Eurozone. Eurozone inflation came in at 5.2% in August, more than double the ECB's target. However, with the European economy struggling, there is doubt as to whether the ECB is willing to raise rates further to curb inflation at the expense of the economy.
GBP
The British Pound saw red once again yesterday and remained under pressure in today's European session as rising US bond yields have added to the Greenback's strength against the Pound. Earlier, GBP/USD touched its lowest level since March of this year as the pair paced for its most significant monthly loss since September 2022.
With an empty calendar today, Sterling traders will look ahead to Friday's crucial UK GDP print. Signs of worsening growth will only add to recent speculation that the BOE may be headed to the sidelines, especially given last week's cooler-than-expected inflation report.
JPY
After another losing day yesterday, the "intervention watch" continues for the Japanese Yen. Yesterday's losses against the Dollar put the Yen another step closer to the levels seen last year that sparked from Japanese authorities to prop up the currency. The battered Yen has struggled to stay afloat as the BOJ sticks to its negative interest rate policy while most of its major peers signal higher-for-longer rates.
Overnight, Japan's finance minister, Shunichi Suzuki, stated that authorities are considering all options to address excessive currency volatility while emphasizing the importance of gaining the consent of G7 allies before taking any potential action.
CAD
Much like their US counterpart, the yield on Canadian 10-year government bonds rose to its highest level since 2008, boosting the Loonie yesterday as traders increased bets for another BOC rate hike in the coming months. Market pricing indicates a coin-flip chance for an October rate hike while fully pricing in a 0.25% hike by March 2024.
On the data front, manufacturing sales are expected to have increased by 1.0% in August, driven by the petroleum and coal products as well as the food subsectors. In the wholesale trade sector, sales are expected to have risen 2.6%, primarily due to higher sales in the machinery, equipment, and supplies subsectors.
MXN
The Mexican Peso has stumbled out of the gates this week as a surging Dollar and resurfacing fears of China's struggling property sector weigh on LATAM currencies. With risk sentiment waning, the rally in oil prices has also cooled, weighing on the Peso.
Looking ahead to tomorrow, Mexico's balance of trade report for August is scheduled for release at 8:00 AM EST. In July, Mexico's trade deficit significantly narrowed to $0.88B compared to $6.247B in July 2022. This improvement was driven by a 2.9% increase in exports, while imports decreased by 7.7%.
BRL
Brazilian Real traders are reacting to this morning's mid-month CPI print, which showed Brazil's inflation accelerated to 5% in September, the highest reading in six months, with notable increases in health and personal care, education, clothing, and transportation costs. On a monthly basis, mid-month consumer price inflation increased to 0.35%.
Also crossing the wires today, the BCB has indicated that it is unlikely to implement larger interest rate cuts, citing concerns about long-term inflation expectations. Policymakers plan to continue with gradual 0.5% cuts until at least December as they monitor inflation.
CNY
Another day, another aggressive fix from the PBOC. China's central bank set the onshore market fix 1447 pips over the Reuters estimate, setting another record in terms of deviation. The PBOC is taking action to prop up the Yuan in anticipation of high demand for Dollars from both corporations and individuals ahead of the upcoming week-long holiday in China.
Meanwhile, in the latest twist in the Evergrande saga, a Reuters report indicates some of its offshore creditors may join a court petition to wind up the property giant if it doesn't provide a new debt plan by the end of October.
