NY stock futures are rallying with European stocks ahead of a Federal Reserve decision in which officials are expected to signal plans for tighter policy. Markets have been volatile ahead of the Fed's decision, with tensions between Russia and the U.S. adding to investor concerns. Traders are waiting to see how aggressive the central bank sounds in its fight to control inflation, both through expected interest rate hikes starting in March and subsequent reductions in its Treasury holdings. The VIX volatility index falls from a one-year high, snapping six days of gains. Global stocks have lost about 7% in January, on track for the worst month since the pandemic roiled markets in 2020. President Joe Biden said he would consider personally sanctioning Vladimir Putin if he orders an invasion of Ukraine, intensifying efforts to deter the Russian leader from war.
The dollar (DXY) entered a consolidation mode in premarket trading Wednesday after reaching a two-week high of 96.27 on Tuesday, fueled by capitalization of safe-haven flows. The U.S. Federal Reserve will announce its monetary policy decisions later in the day, which will determine the currency's behavior during the session as investors look for more information on when it will initiate interest rate hikes and, with them, a more restrictive policy aimed at further controlling inflation. In this context, we expect a narrow daily trading range between 96.417 and 95.767.
The Colombian peso (COP) strengthened 0,2%, closing Tuesday at $3.968,15 per dollar. As the anxiety generated by the monetary policy decision dissipates ahead of today's announcement, investors' buying and selling eases the emerging currency market, accompanied by rebounds in oil prices, and the conflict between Russia and Ukraine keeps investors nervous. Therefore, we expect a trading range between $3940 and $3990 for the day.
The Mexican peso (MXN) began trading with a downward blow thanks to the strengthening of the dollar, depreciating against the U.S. dollar to the level of MXN 20.5632, with a high of 20.6273 and a low of 20.5581 in the overnight session. The Mexican currency is at its lowest level on Wednesday, and the ongoing tension between Ukraine and Russia is driving investors away from emerging market currency traders. In line with its market structure and yesterday's market volatility, the intraday trading range is expected to be narrowed between 20.525 and 20.67.
The Chilean peso (CLP) opened the day depreciating 0.08%, trading at 797.88 Chilean pesos per dollar. The Chilean peso began the day with further declines as investors awaited the next announcement from the central banks. It is reported that US Treasury bond yields rose on Friday, which could generate greater confidence after days of high market volatility. However, anxiety about a tight monetary policy is expected to ease today. In this context, we expect a narrow daily trading range between 803.175 and 789.125.
The Peruvian sol (PEN) began trading at S/3.8465, with a slight decline of 0.05% from its last close. The currency had an intraday high of 3.8553 and a low of 3.844. Due to its market structure, a narrow intraday trading range between 3.81 and 3.865 is expected.
The Chinese Yuan (CNH) opened the session higher, trading at 6.3266 yuan per dollar, with the USD/CNH pair declining 0.04%. The pair opened the session higher, driven by anticipated monetary easing, which failed to prevent seasonally stronger demand for the yuan ahead of the Spring Festival holiday. Additionally, sovereign bonds extended their gains amid growing concerns about the Omicron variant of COVID-19, which strengthened the USD. However, the CNH pair may gain strength due to an improvement in risk sentiment. In this context, we expect a narrow daily trading range between 6.335 and 6.322.
The euro (EUR) begins the day with a 0.15% depreciation at a trading price of US$1.1282. The European currency begins the day with further declines, falling for the third consecutive day, while the US currency advances. Today, the Fed's monetary policy decision, which will take effect in March, will be announced, and the currency is in close anticipation. It is known that the rise in the dollar and the fall in the euro stem from the presence of an increase in Treasury bond yields, and what the Federal Reserve makes clear today, pointing to an interest rate increase, is of utmost importance, considering the future trajectory. In this context, we expect a narrow daily trading range between 1.132 and 1.124.
The British pound (GBP) began trading 0.13% higher at $1.3514, returning to positive territory, breaking above the $1.3500 level. The pair opened the session higher, driven by an improvement in risk sentiment, while markets remained focused on the UK political situation and the FOMC's monetary policy announcement this month. Another issue that continues to dominate the UK is the pressure on Boris Johnson. The Prime Minister continues to defend his administration, which has been affected by reports of partying during COVID-1.357 restrictions. In this context, we expect a narrow daily trading range of 1.346–XNUMX.
The Japanese yen (JPY) opens the session slightly higher, with USD/JPY holding strong bids around the 114.2 yen level, generating a weekly high. The currency pair is attracting fresh bids from investors, recovering from the weekly low of 133.45, trading higher for the second consecutive day. Despite rising geopolitical concerns, the currency continues to act as a safe haven. Based on the market profile, we expect a tight range between 113.60 and 144.38.
The Swiss franc (CHF) opens the day with a 0.26% gain at a trading price of 0.9205 francs per dollar. The European currency begins the day in positive territory, in line with the dollar. This gain is known to be due to Wednesday's increase in US Treasury bond yields, and the currency's appreciation or depreciation will depend on how the market reacts to the Fed's monetary policy announcement today, which will take effect in March. In this context, we expect a narrow daily trading range of 0.924–0.917.
The Canadian dollar (CAD) continues to lose value, hitting a two-day low of C$1.256 during the European session. Despite yesterday's upward move, the pair faced selling pressure on Thursday, extending its decline from the 1.27 level. Investor anxiety over tensions between Ukraine and the Middle East pushed oil prices closer to multi-year highs, generating sharp movements for the currency pair. Given its market profile, we expect a tight range between 1.2553 and 1.265.
The Australian dollar (AUD) opened the day with a 0.34% gain, reaching 0.7172, while approaching 0.7200. The pair started the day in positive territory, moving higher due to an improvement in risk sentiment and signs of stability in global stock markets. This, coupled with expectations of an earlier interest rate hike from the Reserve Bank of Australia, acted in favor of the riskier Australian dollar. Tuesday's stronger Australian CPI report fueled speculation that the RBA will end its bond-buying program at its next meeting and open the door to rate hikes this year. Against this backdrop, we expect a narrow daily trading range between 0.722 and 0.714.
The New Zealand dollar (NZD) opened the day with a slight 0.07% gain, trading at 0.6691. The pair opened the session higher, driven by improved risk sentiment. Despite rising geopolitical risks, signs of stability in the stock markets proved to be a key factor, offering some support to the perceived riskier New Zealand dollar. Meanwhile, elevated US Treasury yields should continue to support the USD. This, coupled with the lower risk sentiment in the market, could provide some support to the NZD/USD pair. In this context, we expect a narrow daily trading range between 0.673 and 0.666.
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Héctor Wilson Tovar García Macroeconomic Analysis
Research Manager wtovar@accivalores.com
Laura Daniela Triana Pulido Equity Analyst daniela.triana@accivalores.com
Daniel Herrera Hernandez Fixed Income Analyst daniel.herrera@accivalores.com
Juan Pablo Bejarano Holding Sector Analyst juan.bejarano@accivalores.com
Andres Felipe Campos, Retail Sector Analyst andres.campos@accivalores.com
Daniel Felipe Pardo Energy Sector Analyst daniel.pardo@accivalores.com
Juan Felipe Herrera, Financial Sector Analyst juan.herrera@accivalores.com
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