Safe-haven US dollar hits 22-year high

The news shaping the markets today

The US has warned Russia of “catastrophic” consequences if it uses nuclear weapons during its ongoing war with Ukraine. WTI crude oil futures traded lower this morning.

Japan’s manufacturing PMI fell to 51.0 in September, from a final reading of 51.5 in August, exerting pressure on the JPY/USD forex pair.

The S&P Global US services PMI climbed to 49.2 in September, from 43.7 a month ago. However, the Nasdaq Composite index shed around 200 points.

Chile’s annual producer price inflation declined to a 19-month low of 17.2% in August, from 21% in the prior month. Despite this, the CLP/USD pair remained flat in forex trading this morning.

Macau’s annual inflation rate eased to 1.13% in August, versus an over two-year high of 1.38% in the earlier month. However, the MOP/USD forex pair came under pressure due to the strength of the US dollar.

What’s happening: US dollar moved higher on Friday, as traders reacted to the recent rate hike by the Federal Reserve.

What happened: The greenback hit a fresh 22-year high amid rising concerns around global economic growth.

One of the major rival currencies tumbled to a 37-year low, despite interest rate hikes.

Why it matters: Several major global central banks, including the Fed, ECB, Bank of England, and Swiss National Bank, raised their interest rates last week to combat rising inflation. The US Fed also signalled high-interest rates to continue through 2023, exerting pressure on the equity markets.

The US central bank raised its federal fund’s rate by 75 basis points to a range between 3% and 3.25% at its latest meeting, lifting the benchmark short-term rate to its highest level since 2008. Interest rates are expected to reach 4.4% by December, above June’s projections of 3.4%.

The greenback also received support from the Federal Reserve’s hawkish stance and rising Treasury yields.

The British pound fell to a 37-year low after the UK government revealed debt-financed tax cuts, which are expected to increase borrowing. The GBP/USD forex pair fell around 3.6% to 1.0850, representing its steepest single-session decline since March 2020 when the pandemic hit global markets. The Bank of England raised its interest rates by 50 basis points last week to combat rising inflation.

The euro dipped to a new 20-year low on Friday, declining for a fourth consecutive day, after recently released data signalled a further downturn in Germany’s economy. Germany’s manufacturing PMI fell to 48.3 in September, from 49.1 in August, while composite PMI declined to its weakest level since May 2020.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, gained 1.5% to settle at 113.02 on Friday.

What to watch: Traders await the release of the Chicago Fed National Activity Index and Dallas Fed Manufacturing Index from the US today. The Federal Reserve Bank of Dallas’ general business activity index for manufacturing in Texas, which climbed to -12.9 in August, is expected to improve to -5 in September. The Chicago Fed National Activity Index is projected to decline to 0.24 in August, from 0.27 in July.

The markets today

The Canadian dollar will be in focus today ahead of wholesale sales data

Context: The CAD/USD forex pair fell on Friday amid a sharp decline in oil prices.

Details: Domestic data released Friday showed retail sales declining 2.5% in July, higher than the preliminary estimate of a 2% decline, which signalled a higher-than-expected slowdown in consumer spending after the Bank of Canada announced rate hikes.

Total manufacturing sales in Canada fell by 1.8% in August, following a 0.9% decline in July. Canada also reported a government budget surplus of C$3.9 billion in July, versus a deficit of C$10.9 billion in the year-ago month.

Prices of WTI crude oil, one of Canada’s major exports, tumbled 5.7% to close at $78.74 per barrel on Friday, reaching an eight-month low.

The CAD/USD forex pair fell 0.75% to settle at 1.3589 on Friday, after hitting its lowest intraday level since July 2020 during the session.

The Toronto Stock Exchange’s S&P/TSX composite index shed 521.70 points to close at 18,480.98 on Friday, recording its biggest downturn since June 16 and reaching its lowest settlement in over two months. For the week, the TSX index lost 4.7%.

What to watch: Traders await the release of wholesale sales data from Canada today. Canada’s wholesale had contracted by 0.6% in July and is expected to decline again, by 0.4% in August.

Other Markets: European trading indices closed lower on Friday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 1.97%, 1.97%, 2.28% and 2.34%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Czech Republic’s business confidence indicator and consumer confidence indicator, Spain’s producer inflation, Turkey’s manufacturing confidence index and capacity utilization, Germany’s Ifo business climate indicator, Ifo current conditions subindex, and Ifo business expectations subindex, Hong Kong’s balance of trade, Brazil’s FGV consumer confidence index, Mexico’s economic activity, Brazil’s current account, foreign direct investment and Central Bank of Brazil’s focus market readout, Belgium’s business confidence, as well as Argentina’s economic activity estimator.