Economic data continues to paint a mixed picture resulting in choppy financial markets. The dollar tends to do well in these conditions with the BBDXY index gaining every day last week and a total of 2% for the week. See table below for year-to-date changes in currencies. The Jackson Hole Symposium begins Thursday with central bankers expected to favor inflation fighting over economic growth.
- GBP- traded below 1.18 despite CPI coming in at +10%
- EUR – drought causes surge in electricity costs and rivers closing to transport
- CNH – Weak economic data leads to interest rate cut
- Fed speakers all stress the need to raise rates in the US to rein in higher prices.
Notable Economic Data/Events this Week:
Tuesday: US New Home Sales & August PMI
Wednesday: US Durable Goods Orders, S&P Global Manufacturing for Eurozone & UK
Thursday: US Personal Income/Spending, German IFO Business Climate, Japan CPI, Jackson Hole Symposium begins
Friday: US Core PCE Deflator for July, Univ .of Michigan Consumer Sentiment
Volatility in FX markets is up materially following many years of below average movements. For example, the average weekly trading range for EUR/USD in 2022 YTD is 2.2%, a 50% increase over same period in 2021 (1.4%).
Last Week's Range
EUR/USD 1.00-1.03 GBP/USD 1.18-1.21 USD/CAD 1.28-1.30 AUD/USD 0.69-0.71 USD/JPY 133-137 USD/CNH 6.73-6.84 USD/ILS 3.22-3.29 USD/MXN 19.8-20.3 USD/CHF 0.94-0.96 USD/INR 79-80 USD/BRL 5.07-5.21 USD/SGD 1.37-1.39 USD/DDK 7.24-7.41 USD/SEK 10.19-10.60 USD/NOK 9.56-9.82
The dollar’s safe-haven status helped the greenback gain 2% last week as investors struggled to navigate conflicting data, sentiment, Fed speakers and the typical low summer trading volumes. Empire manufacturing came in much weaker (-31) than expected (+5) while the Philly Fed Outlook (+6.2) was much better (-5). This week's economic releases and Jackson Hole comments may create opportunities to capitalize on outsized currency movements.GBP
The Bank of England may be ahead of most other central banks with recognition of how bad their economy is. Last week’s July CPI reading of 10.1% will keep the focus on fighting inflation despite slow growth. The Bank of England is signaling its benchmark rate could hit 3% by year end from the current 1.75%. Stagflation concerns are setting up the pound to test the 1.1780 low of July 14.EUR
This morning, the euro again touched parity with the dollar as economic activity in the eurozone faces strong headwinds. Last week, the German ZEW survey fell to -55.3 representing the lowest since October 2008. Drought conditions are severely limiting commerce transport on Europe’s major rivers and energy prices continue to increase with demand for winter storage. The ECB is expected to raise rates by 0.50% at the September 8 meeting but overall interest rate levels will still lag the Fed, Bank of England, Bank of Canada and other central banks.CAD
The Canadian dollar started last week by losing 1% after weak economic data from China led to concerns for global growth. Canada’s core inflation came in at +5.5% vs. a forecast of 4.7% leading to expectations of a 0.75% rise by the Bank of Canada at their September 7 meeting. The table below shows how, despite recent weakness, CAD remains one of the best performers relative to USD. READ HERE in SVB’s FX Quarterly Outlook how the price of oil has supported the Canadian dollar.ASIA/PACIFIC
The Chinese renminbi traded at its weakest level since Aug. 2020 after last week’s disappointing data on retails sales, property sales and industrial production led to a cut in interest rates by the PBOC. China’s economy may continue to weaken due to its zero-COVID policy, high debt levels and severe drought conditions. The renminbi may see more losses as China cuts rates and most of the rest of the world raises rates.Performance relative to USD:
Current Change since Dec. 31, 2021 Spot Dec. 31, 2021 CAD 1.2637 1.3038 -3.2% AUD 0.7263 0.6888 -5.2% CHF 0.9129 0.9596 -5.1% EUR 1.137 0.9979 -12.2% GBP 1.3532 1.179 -12.9% JPY 116.17 137.18 -18.1% CNH 6.357 6.8446 -7.7%
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