The US dollar remained stable as markets processed rising geopolitical risks in the Middle East and awaited more US economic data.
This stability comes despite the general move towards safe haven assets in foreign exchange markets, which has not led to a significant reduction in risks, HSBC noted in a note issued on Wednesday.
Domestic factors in other countries have reduced the safe-haven appeal of their currencies. For example, Japanese officials have advised caution regarding interest rate increases, and the Governor of the Bank of Japan has highlighted ongoing global economic uncertainty.
In Europe, European Central Bank hawks remained silent, in line with market expectations of a possible interest rate cut in October. The ECB’s Kazak acknowledged the possibility of a rate cut given the clear economic risks, although he said it was too early to conclude that inflation had been fully addressed.
Despite these cautious signals, the eurozone unemployment rate remained stable at 6.4% in August. Market participants are now looking to the European Central Bank’s Isabel Schnabel for indications on whether she will counter the market’s dovish outlook.
The Swiss National Bank (SNB) has signaled its unwillingness to allow the Swiss franc to appreciate, with new president Martin Schlegel suggesting the use of interest rates and possible interventions in the foreign exchange market.
Schlegel also noted that the risks to Swiss inflation are more to the downside, and does not rule out negative interest rates. This situation may affect the role of the franc as a safe haven, which may make the US dollar or gold more attractive in times of high risk aversion.
In the United States, mixed signals emerged from the labor market, as JOLTS data showed a rise in job openings, while the ISM Manufacturing Survey indicated a decline in the employment component. The market is now anticipating the release of ADP payroll estimates, with consensus forecasting a 125K increase in September.
This data, along with upcoming speeches by Fed officials, could influence expectations for the November Federal Open Market Committee (FOMC) meeting, where a 25 basis point rate cut is fully priced in, with a 40% chance of a 50 basis point cut. .
Finally, Moody’s (NYSE:) improved Brazil’s sovereign rating outlook to Ba1, one notch below investment grade, while maintaining a positive outlook. This reflects Brazil’s strong growth and structural reforms, including the upcoming tax reform, which could contribute to long-term growth. Despite acknowledging the fiscal challenges, Moody’s expects Brazilian government debt to stabilize at around 82% of GDP over the medium term. This upgrade may contribute to a decline in the US dollar exchange rate against the Brazilian real, in line with Moody’s end-of-year target.
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