Equity and Fixed-Income markets are relatively quiet this morning after yesterday’s risk rally on the back of lower-than-expected quarterly borrowing estimates released by the US Treasury. The USD, on the other hand, is stronger as a lackluster Bank of Japan and increasing Middle East tensions route safe haven flows to the greenback.

Yesterday, the Treasury estimated that their borrowing for the 4th quarter will be $776 billion, far less than their $852 billion estimate for the same period in July. Their estimate for the 1st quarter of 2024, however, was higher at $816 billion. Nonetheless, the market liked this development given the recent uptick in borrowing to finance the sharply growing federal deficit of $2.02 trillion. The next significant data point will come tomorrow, ahead of the Fed rate decision, when the Treasury announces the maturity breakdown of all this planned borrowing.

The further escalations between Israel and its neighbors have eaten away at some of that Treasury-positivity, driving flows into the USD, gold, and Oil. Fighting occurred deeper into Gaza and Lebanon, while Houthi militants in Yemen fired additional rockets towards Israel and a US base in Iraq came under drone attack again.

Another driver of USD strength has been Yen weakness as the Bank of Japan disappointed the market during their rate decision today. Specifically, the market was expecting the BoJ to reduce their stranglehold on sovereign debt, letting yields go higher. This did not materialize as expected bringing USD/JPY on the cusp of levels not seen in 33 years.

All eyes are now on the FOMC interest rate & Treasury borrowing releases due tomorrow.

EUR/USD is close-to-unchanged on the day as initial strength faded due to a lower-than-expected Eurozone CPI. The month-over-month print comes in at +0.1%, lower than the 0.3% expected. On a YoY basis, the CPI was +2.9%, 0.2% less than expected and a big drop from the prior +4.3% reading. This gives more substance to the ECB’s recent pause and gives the market less reason to hold Euros for the time being.

USD/CAD is higher on the day as this morning’s GDP print comes in lower than expected on a month-over-month basis. There was zero GDP growth in August compared to July with a tick higher of 0.1% expected by median analyst survey. GDP dropped by 0.2% as expected to 0.9% on a YoY basis. The Loonie sold off on this as this further adds to dovish pressure on the Bank of Canada going forward.

GBP/USD flipped from gains to losses in line with peers on no Sterling-specific news. The market is concerned that the dovishness of the ECB will be hard for the Bank of England to ignore this Thursday, further adding to Pound-weakness in the near term.

USD/MXN is close-to-unchanged on the day as stronger than expected 3rd quarter GDP growth supports the Peso versus peers. The YoY reading was 3.3%, a drop of 0.3% versus the prior reading but 0.1% higher than expected. On a quarter-over-quarter basis, GDP ticked higher to 0.9% from the prior reading of 0.8%.

USD/BRL is higher on the day as the market still digests President Da Silva’s recent comments regarding Brazil’s 2024 zero budget deficit goals. He recently implied that meeting these targets is not a necessity and his Finance Minister’s comments thereafter did not do much to assuage those concerns. All eyes are on tomorrow’s Brazilian Central Bank rate decision after the market close.