Daily Market Update

Buck resurgence eases, focus on China and EM

February 06, 2024

The U.S. Dollar is trading in tighter ranges in comparison to yesterday as markets gauged all the reaction from Sunday’s Powell overnight surprise.

Overview

The Fed chairman was adamant that markets were too eager to price in interest-rate cuts that may not arrive anytime soon. An expanding economy is certainly helping officials settle back and see what else other than a soft landing can develop going forward. Ultimately, there is disinflation, steady employment, and spending, all signs that the Fed has acted correctly, and they are not in any hurry to affect that.

While it is natural for the Buck to rise with these statements, USD strengthening has been halted as other items come into play when forming an outlook for 2024. China seems serious about overcoming a sluggish time in its economy as well as the deterioration of its image. President Xi Jinping wanted to stimulate the domestic stock market, which took losses while all other equity exchanges across the globe expanded. The Hang Seng exchange climbed 5.0% on the news alone. Meanwhile, the remainder of the week will be sprinkled with some Fed officials here and there, but there is a growing risk appetite that could impact Buck’s rise with earnings reports in tech surprising forecasts.

What to Watch Today…

EUR  ⇓

The Euro remains down and stuck around its weakest levels since mid-November after the establishment of a ‘hawkish’ Fed and General Buck’s resurgence from it. Nevertheless, all eyes are on Germany and the possibility that the largest economy of the EU can overcome a stagnant time economically. We have Industrial Production out tomorrow, while inflation in the form of consumer Price Index figures will be released Friday, but data is already making an impression.

Earlier, the readings for December Factory Orders revealed an outstanding 8.9% rise instead of a (-0.2%) contraction as estimated. It is the highest reading since July 2020. We shall see if these improvements stack up along with other nations advancing to boost the Euro in the long term.

MXN ⇑

The Mexican Peso has recovered some ground as a strong economy continues to keep pressure on Banxico not to jump into interest rate cuts. The central bank meets on Thursday, and it is expected that they will likely send similar guidance to the Fed by excusing a wait-and-see approach. It is important to note that the President, AMLO, sent proposals to Congress to reform pension payments, maintain a high minimum wage, and amend the constitution to have Supreme Court justices elected. While ambitious, it seems most analysts agree these are not going to be implemented but give a platform and agenda to the person he wants as successor in Claudia Sheinbaum. June elections and the run-up to them will be highly volatile times for MXN.

 

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