Foreign Exchange Commentary

Summary

• Canadian dollar steadies near 12-month low on fourth-quarter economic growth data.
• 10-Year Treasury yield falls to 4.23% from over 4.30% after PCE shows lowest year-over-year increase in 3 years at 2.8%.
• U.S. personal income rises 1% month-over-month; U.S. personal spending rises 0.2% month-over-month.
• MXN shows resilience to U.S. yields before PCE data.
• Great British pound edges up on rising risk demand; gilts steady.
• Japanese yen rises on Bank of Japan (hawkish) guidance, trades near 149 per one U.S. dollar.
• Norwegian krone tumbles to lowest versus euro currency since mid-December.
• Euro-Yen option bets head for the most bearish day since September.
• U.S. weekly jobless claims at 215,000 for the week of February 24th; estimate: 210,000.
• China’s 30-year yield falls on PBOC easing bets.

Noteworthy

• U.S. Dollar Declines Slightly, G-10 Currencies Trade Mixed After Core PCE
• China Reports Smallest Foreign Investment Increase in Over Two Decades

The U.S. dollar fell marginally, but generally remained within recent ranges after the highly anticipated U.S. personal consumption expenditures (widely considered the Federal Reserve’s primary indicator of the level of inflation) came in as expected near a 3-year low at 2.8% year-over-year.

The personal consumption expenditures price index—the Federal Reserve’s preferred inflation gauge—rose 0.3% from December to January, in line with what economists expected.

The core index, which strips out volatile food and energy prices, climbed 0.4%, also in line with expectations. The trend for stocks has been higher all year, so no news is good news for traders.

Meanwhile, markets are looking to close out February with their best start to the year since 2019: The Dow and S&P 500 are on track to post their biggest gains for the January to
February period since before the pandemic.

Separately, the Bank of Japan suggested further tightening in interest rates after their 2-year yield touched its highest level since 2011 earlier this week.

Elsewhere, China reported the smallest amount of annual foreign direct investment since the 1990s last year, amid capital outflow pressure and challenges attracting foreign capital due to tensions with the West.

China’s direct investment liabilities, a broad measure of FDI that includes foreign companies’ retained earnings in the country, rose by $33 billion in 2023, down 81.7% from 2022, according to data from the State Administration of Foreign Exchange released Sunday.

This is the smallest annual increase since 1998, according to Wind, a local data provider that cited official figures.

In the final quarter of last year, the gauge increased $17.5 billion, after recording its first ever quarterly deficit in the third quarter, according to data released by SAFE.

The slowing growth momentum and uncertain business environment as well as low interest rates compared with other markets have prompted companies to pull money out of China.

Meanwhile, SAFE also reported Sunday that China’s current account surplus stood at $264.2 billion in 2023, which is around 1.5% of the nation’s gross domestic product. China recorded a $608 billion goods trade surplus in 2023, the second highest on record, and $22.4 billion in service deficit.