Global overview
The US dollar’s recent weakness after last week’s Federal Reserve decision turned abruptly overnight after Fed chair Jerome Powell reiterated the central bank’s focus on bringing inflation back to 2.00%. The greenback jumped and US shares fell. Tonight, US consumer confidence is due.
The Fed giveth and the Fed taketh away
The significant rally in global equities – and losses in the US dollar – that we have seen since last Thursday’s Federal Reserve decision was swiftly reversed overnight after a speech from Fed chair Jerome Powell hit sentiment.
Powell underlined that the Federal Reserve’s inflation target remains at 2.00% and the US central bank might need to raise rates further to achieve that aim. (Core PCE inflation, the Fed’s preferred measure of inflation, was reported at 3.7% in annual terms last month.)
Some commentators suggested that Powell’s tough talk was a reaction to the huge rally in equities – the Nasdaq gained 6.5% in the six days since the Fed’s decision – with the central bank possibly unsettled by easing financial conditions.
US shares fell overnight with the S&P 500 and Nasdaq both down 0.8%.
In FX markets, the US dollar gained with the USD index up 0.4%.
The AUD/USD fell 0.5% while the NZD/USD lost 0.2%. The USD/SGD gained 0.3% and the USD/CNH climbed 0.2%.
INR weaker, but losses limited
In emerging markets, the Indian rupee had recently improved in line with stronger global equity markets after a period of weakness. Emerging market FX tends to be highly correlated to broader risk appetite.
Looking ahead to today’s industrial production numbers, in addition to an easing of sequential momentum to -1.1% MoM (seasonally adjusted) from 1.4% in August, industrial output growth is expected to decelerate to 7.2% YoY in September from 10.3% in August. This is partly due to a somewhat unfavorable base effect. While the output of consumer durables is predicted to weaken, the infrastructure and capital markets—two industries linked to investments—are expected to do well.
From the macro lens, given India’s external accounts, significant foreign exchange reserves, fundamentally more insular business cycle, and policy reaction function, we view INR as less susceptible to the dollar strength than other emerging market currencies.
US confidence due
In what’s been a quieter week for economic data, tonight sees the US University of Michigan consumer sentiment released. It is anticipated that the preliminary University of Michigan Consumer Sentiment Index for November will increase little to 64.3. Over the course of the poll, stock prices rose and gasoline prices decreased.
Expectations for inflation in the next year rose 1 percentage point to 4.2%, the highest level since May 2023. The below chart shows the US consumer sentiment had edged up in recent months.
At last week’s FOMC news conference, Fed Powell downplayed this, stating that inflation expectations were still quite well-anchored. We anticipate that as the disinflation trend continues, expectations for inflation in the next year will probably decline.
Our positive stance on USD is being complicated by macro concerns. Rising US rates and intensifying geopolitics are USD-bullish, while improving momentum in China and Europe and a less assertive Fed would typically be USD-bearish. In the short term, the bias remains net optimistic USD. The USD could gain from increased demand for safe haven assets in foreign exchange.
USD recovers from Fed losses
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 6 – 11 November
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
