Daily Market Update

Cautious Globe Waits for Central Banks

September 12, 2023

After losing ground during yesterday’s session, the United States Dollar broadly advanced this morning (albeit with muted tones) as markets wait for the European Central Bank’s interest rate decision on Thursday.


Concerns of stagflation continue to abound for the UK and for the larger European continent, highlighted by labor data out of the UK and ZEW investor expectations surveys from Europe. With the ECB’s decision Thursday followed by the Federal Reserve and the Bank of England next week, markets are clearly holding their breath and trading accordingly in a risk-averse fashion.

The ”US is in ‘less-bad’ shape” narrative continues to ring true, as we’ve discussed over the past few weeks. As the world enters the front end of this central bank cycle, the question for the Fed is whether or not they actually need to raise rates further to combat inflation. By contrast, the ECB and the BoE are in a much more difficult position – markets remain wholly unconvinced that their respective economies can withstand any further tightening, and inflation rates are consistently higher on the European continent than inside the United States. This outlook was bolstered this morning as UK employment data showed a jump in both unemployment and average weekly earnings, two readings that should not necessarily go hand-in-hand. German and Eurozone investor confidence surveys also posted substantially negative readings in yet another warning sign for the region.

Movements today are decidedly cautious, however, and the USD is not posting outsized gains against any G10 currency. Tomorrow US CPI for the month of August is released, and with Fed officials in their media blackout before their meeting next week, we are likely to see lots of volatility to wrap up the week.


What to Watch Today…

  • No major economic events are scheduled for today

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The single currency lost a third of a percent against the Buck overnight, though still trading in ranges that have come to be familiar over the last month. Markets have largely reached a consensus that there are just 25 basis points of tightening remaining in the European Central Bank’s cycle but are split on when exactly it will come. ECB officials have stayed remarkably mum over the last few days, leaving market expectations in the lurch.


Though the Mexican Peso has lost some ground this morning, the currency recovered north of 1.5% during yesterday’s trading session and is still more than a percent stronger versus the Buck this morning when compared with Monday’s opening price. Yesterday Mexico released its 2024 budget, showing a bigger budget gap than this year, and markets largely expect that Banxico will be forced to keep its interest rate higher for longer to fund the government’s increased spending, giving MXN a boost.

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