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USD

Currency Market Sub-Plots Lift Greenback

The dollar is creeping upward as conflicting cross-currents in the foreign exchange markets contrive to keep most majors tightly rangebound. Yields are broadly flat, and equity futures are setting up for a slightly weaker open. Mexico’s Banxico yesterday became the second central bank—after the Reserve Bank of Australia—to defy increasingly-dovish policy expectations, sending the peso soaring by raising rates by half a percentage point in a move that surprised virtually every observer. In a statement accompanying the decision, policymakers said “Given the dynamics of core inflation, on this occasion it is necessary to continue with the magnitude of the reference...

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Bond Market Signals

Fairly modest moves across markets overnight, though the underlying themes of participants reassessing the outlook for how high interest rates could go, how long central banks may need to keep them there to squash inflation, and concerns about what the economic impacts could be continuing to bubble to the surface. The US S&P500 drifted back again (-0.9%) as US bond yields rose ~6bps across the curve. The USD index has range traded over the past few sessions, but in level terms it is still up near a 1-month high. EUR is down near 1.0730, USD/JPY is up around 131.60, and the...

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Mexican Peso Surges on Surprise Rate Hike

Surprise 50 basis point rate hike from Banxico this afternoon – widened the yield differential against the dollar, and kicked the peso higher. More here: Bloomberg: Mexico Stuns Markets With Half-Point Rate Hike on New Inflation Gain

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Markets Advance as News Flow Ebbs

With the number of US data releases slowing to a trickle and next week’s all-important inflation print looming ahead, risk assets are inching higher, leaving currency markets largely rangebound. Equity futures are advancing while yields come under pressure – translating into a slightly weaker dollar.  Implied volatility levels are coming back down, suggesting that a post-jobs report bounce in yields has helped reset market positioning to more neutral levels – reducing the perceived risk of a big washout around the January consumer price index release. Implied terminal rate expectations are holding between 5.1% and 5.2%, up from the 4.9% area...

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Sentiment Improves as Fed Rhetoric Remains Balanced

The dollar is softer and Treasury yields are subsiding after the chair of the Federal Reserve avoided walking back last week’s observation that signs of “disinflation” were beginning to appear – something that many saw as a communications error at the time.  Jerome Powell essentially repeated last week’s message in a question and answer session at the Economic Club in Washington yesterday. Speaking with David Rubenstein, Powell noted that Friday’s jobs data was “certainly strong – stronger than anyone I know expected,” warning that the process involved in getting inflation down to target would be “bumpy”. “The reality is we’re...

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