The U.S. dollar is under heavy pressure against most of its rivals as global risk appetite improves.
Overview
Federal Reserve President Jerome Powell sparked a global equity rally yesterday after he confirmed the Fed would partake in a slower rate-hiking pace. The S&P closed 3.0% higher, and the NASDAQ rallied over 4.0%.
The market jubilee continued overnight as it appears China will take a softer stance on Covid, including allowing some residents to self-isolate at home. The world equity indices board is awash in the green today, and American futures show stocks will add to yesterday’s gain, all at the detriment of the U.S. dollar. The Bloomberg Dollar Index fell to a three-month low.
There is a plethora of data due out today. U.S. personal spending rose 0.8% month over month in October, matching estimates. Personal income rose 0.7% m/m, besting expectations of a 0.4% increase. A separate report showed continuing jobless claims reached the highest level since February, a possible warning sign for the labor market.
The dollar extended its overnight losses in early trading after the PCE Deflator print, the Fed’s favored inflation measure, came in below estimates. The headline PCE rose 0.3%, and the core only 0.2%. While today’s print is only one piece of data, it backs up Powell’s assertion that a slower pace of rate hikes is appropriate.
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What to Watch Today…
- ISM Manufacturing at 10 a.m.
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MXN ⇑
The Mexican peso was also able to take advantage of a weakening U.S. dollar and added 0.4% versus the greenback. Peso traders are trying to gauge appropriate levels for USD/MXN. The peso rallied to its strongest level in over two years earlier this week before retreating sharply. Despite plenty of volatility, the Mexican peso is only 2.3% stronger versus the U.S. dollar over the last month.
GBP ⇑
The British pound continued its healthy rally against the U.S. dollar overnight, gaining 1.5% since yesterday’s close. Much of today’s move can be attributed to widespread U.S. dollar weakness following Jerome Powell’s speech and this morning’s U.S. inflation data. A Bank of England survey showed that inflation pressures in the United Kingdom remain and only show modest signs of decline. Companies expect to raise prices by 5.7% in the next twelve months. GBP/USD is up almost 10% over the last thirty days.
