As geopolitical events in the Levant continue to be a heavy focus for FX traders around the world, the United States Dollar is losing a small bit of ground this morning.
Overview
Overnight, news broke that Hezbollah out of Lebanon conducted airstrikes on an Israeli military base, increasing the risk of further international involvement in this new phase of the longstanding conflict between Israel and Hamas. US treasuries jumped on the news and led European bonds higher as well, and investors searched for haven assets. President Joe Biden also confirmed that there are American citizens among the hostages taken over the weekend, posing an additional risk toward escalation.
Domestic data this morning is also, conversely to what one might expect, giving USD some downside today, and the Dollar Spot Index is unlikely to snap its week-long losing streak, even after the US Producer Price Index came in at 0.5% for September and, excluding food and energy, 2.7% annually. Both these numbers are well above expectations and contrast with Fed-speak yesterday that highlighted the potential for tightening in treasuries to take the place of an additional hike from the Federal Reserve in November. Yesterday’s rather dovish tone taken by Fed officials has been replaced by a couple of speakers overnight that said the Fed’s hiking cycle may not, in fact, be finished. Traders still see only a roughly 25% chance of a hike in November, but markets remain on a knife’s edge.
Tomorrow’s consumer prices release from the US could serve to solidify tonal direction from the Federal Reserve, in addition to today’s minutes release from September’s meeting. The “hawkish pause” narrative that has dominated markets since that meeting may well come into question. Data releases do point to continued economic growth and strength from the US, but warning signs remain, and traders around the world are cautious.
What to Watch Today…
- UK GDP Thursday AM
- US CPI Thursday 8:30 AM
- US Michigan Consumer Sentiment Friday 10 AM
- Monex USA Online is always open
CAD ⇑
Though the Loonie is sliding a small amount this morning after the US PPI release for September, CAD has posted a fairly remarkable gain against USD through this young month to the tune of over a percent. Increased energy prices around the world have no doubt provided the currency with a boost, and continued volatility in oil pricing will drive action moving forward. Canadian data is sparse this week, likely keeping CAD range-bound, but CPI next week should provide the currency with more footing and potential upside.
USD ⇓
Swiss Franc seems to be benefiting the most from traditional haven currencies on the escalating conflict in the Levant, gaining more than two percent against USD since last week and running contrary to most currencies on the G10 board. Though real interest rates in Switzerland remain fairly substantially lower than in most places around the world, the traditional haven appeal of CHF is clearly still intact, especially given the nation’s physical proximity to areas of international strife.
