De-risking is the name of the game once again this morning as the United States Dollar continues its winning streak against most of the G10, set for its fourth straight day of gains.
Overview
With the notable exception of other safe-haven currencies, Swiss Franc and Japanese Yen, USD is notching wins across the board, and the Bloomberg Dollar Spot Index has gained 1.3% in the last four days. Following Fitch’s decision to lower the US long-term credit rating, longer-dated US Treasury yields are closing in on their highest of the year, and the Dollar is following suit as investors search for safer bets. Equity markets are, once again, set to open lower this morning.
Earlier this morning, the Bank of England announced it would hike its key interest rate a further 25 basis points to 5.25%. While expectations had leaned slightly toward this move rather than another 50 basis-point hikes, the move does re-affirm our view that the Bank of England is concerned with the wider economic fallout that larger hikes can cause and are moving closer to the Federal Reserve and European Central Bank’s data-dependent approaches. It remains to be seen, however, where the BoE’s terminal rate will end up and if data-driven moves will be enough to tackle the UK’s ongoing cost-of-living crisis. The decision also was not unanimous, with two members favoring 50 and one member favoring no hike at all. Overall, the central bank attempted to appear hawkish but, in keeping with the prevailing global mood of the moment, leaned more risk-averse. GBP’s path is indicative of the wider trend we are seeing in markets this morning as traders search for more guaranteed returns and place their faith in the Buck.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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MXN⇓
Mexican Peso is this morning’s biggest loser, falling north of a percent against the Dollar. The US’s credit downgrade is having an outsized impact on our southern neighbor – as the US is Mexico’s primary trading partner, the risk to the US’s status as the world’s largest economy has a compounding effect there. MXN is still the second-best-performing currency in the world this year, even in the face of this morning’s move. As long as the US continues its investment in Mexico’s manufacturing sector, we expect the Peso to remain strong.
CAD ⇓
Crude oil futures fell for the third consecutive day this morning, and the Loonie is losing strength against USD in tandem this morning. This is the longest losing streak for Crude since mid-June, and the moves from CAD over the last three trading sessions are following in kind. US two-year yields are also outpacing their Canadian counterparts in broader risk-off trading, and CAD is at its weakest price against the Buck since July 7.
