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JPY

Currencies Stabilize As Pivotal Week Begins

Investors are bracing for a momentous week, with Jerome Powell’s Congressional testimony, three major central bank meetings, and the February non-farm payrolls report combining to set the stage for erratic price action in currency markets. The dollar is climbing, yields are ticking lower, and the euro and pound are tightly rangebound. Commodity-linked currencies sold off over the weekend as China’s leadership unveiled a more cautious growth agenda than had been expected. Work documents released during the National Party Congress outlined plans to increase state outlays and expand the budget deficit, but Beijing set its headline gross domestic product target at...

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China disappointment

• China targets. China’s 2023 growth target was a little lower than expected. Fiscal support also looks set to be more restrained than anticipated.• Risk sentiment. Equities rose on Friday, but the China developments, and ‘hawkish’ rhetoric from Fed Chair Powell could weigh on risk appetite this week.• AUD pressure. RBA widely expected to hike another 25bps. But we think there is a risk its forward-looking rate guidance is adjusted. Market attention remains on bond markets. The uptrend in global yields paused for breath on Friday, with the US 10yr falling by ~10bps to end the week back below 4%....

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Rates still adjusting

• Higher yields. Markets continue to adjust interest rate expectations higher with inflation pressures showing limited signs of abating.• USD rebound. The larger lift in US bond yields has boosted the USD. Equity markets are looking increasingly complacent to the macro landscape.• AUD crosscurrents. Relative interest rate differentials are a AUD headwind. But the high level of commodity prices is an underlying support. The upswing in bond yields has continued with markets coming around to the view that interest rates will need to keep moving higher and stay at very elevated levels for some time to slow growth and (hopefully)...

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Another US inflation surprise

• Higher US rates. Strong US inflation data generated another repricing in US rate expectations, propelling the USD even higher.• Fed needs to do more. Sticky inflation means the US Fed has more work to do. Positive US data can reinforce the upswing in US yields.• AUD slump. AUD is now ~6% below its early-February peak. Will this weeks Australia/China data provide an offset to the stronger USD? The outlook for US Fed policy continues to drive markets. US rate hike expectations took another leg higher on Friday, pushing US bond yields back up towards their peaks. This in turn...

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Looming Inflation Data Reinforces Market Caution

Risk appetites and trading ranges remain subdued across the financial markets this morning as investors brace for an inflation report that could show the Federal Reserve’s monetary tightening efforts are having little effect on underlying price pressures – or on overall aggregate demand. The Federal Reserve’s preferred inflation measure will land in less than half an hour, with markets prepared to see more evidence of overheating. Economists think the headline headline personal consumption expenditures deflator rose 0.5 percent month-on-month, with the annual rate holding at 5 percent. Consumer spending is seen increasing 1.4 percent from the prior month, and personal...

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