Until evidence of near-bottoming economic data or a pivot by the Fed towards dovish policy materializes, further downside for risky assets remains an intact consensus. Removal of explicit forward guidance from central banks worldwide burgeons a new world of volatility and eliminates shelter from hedging costs. Reactionary policymaking dependent on productivity and inflation results has supported a broad-based USD move, but secular currency performance will likely skew results in a post-negative interest rate era.
Wednesday: FOMC Rate Decision
Thursday: US GDP, AUS CPI
Friday: Canada GDP, Euro-area CPI
Last Week's Range
EUR range 1.0064-1.0278 GBP range 1.1860-1.2064 CAD range 1.2823-1.3038 AUD range 0.6786-0.6977 JPY range 135.57-138.88 CNH range 6.7359-6.7880 ILS range 3.4281-3.4671 MXN range 20.3180-20.7236 CHF range 0.9600-0.9790 INR range 79.70-80.0638 BRL range 5.3533-5.5142 SGD range 1.3854-1.4019 DKK range 7.2432-7.3930 SEK range 10.1490-10.5198 NOK range 9.8732-10.2451
The Federal Reserve faces a difficult balancing act as it attempts to bring price pressures under control without pushing the economy into a recession. Money market traders have scaled back bets of an aggressive full point rate hike at Wednesday’s FOMC meeting with Fed officials cautious of a potentially waning labor market and faltering consumption levels. Until Fed hawkishness dampens and global growth concerns ease, the familiar narrative of “king dollar” will likely continue to hamper the comeback of higher-beta currencies.GBP
Political turbulence, high inflation, and a large deficit are all factors exacerbating sterling’s more than 11% drop against the dollar this year. Regardless of whom is selected to succeed Boris Johnson as Britain’s next Prime Minister, they will inherit economic wounds which will be difficult to heal. Last Wednesday’s record inflation print coupled with languishing consumer confidence leaves the BOE teetering between aggressive rate hikes and accommodative policy at their next meeting on August 4.EURFor the first time since 2011, the ECB unexpectedly raised interest rates by half a percent to end an era of negative rates. By front loading rate hikes and introducing the Transmission Protection Instrument (TPI), a bond purchase program intended to prevent borrowing costs of euro nations from diverging excessively, the ECB reveals the bloc’s fragility. Italian PM Draghi’s resignation, shortly before the ECB meeting, will test the newly unveiled TPI and adds to the eurozone’s running list of uncertainties. Amongst these risks, despite some reprieve from the Nord Stream pipeline coming back online, is an energy crisis as Russia plans to annex regions of Ukraine.CAD
A week following Bank of Canada’s full percentage point interest rate increase, consumer price gains accelerated to the highest level in almost forty years. Retail sales volumes shared last week were up more than anticipated, but real GDP data to be released this Friday, also for May, is on track for a slight decline. Although helpful, previous month’s data fails to test the economy’s wherewithal for tighter monetary policy.ASIA/PACIFIC
Japan’s key inflation gauge climbed further above the BOJ’s target level of two percent, an outcome that challenges Governor Kuroda’s commitment to ultra-low interest rates. Regardless of continued price gains, policymakers remain unconvinced of sustainable inflation. The government is closely monitoring possible negative impacts to household spending power; Thursday’s Retail Sales figure may serve as a bellwether.
Australia is expected to produce a multi-decade high inflation reading on Thursday which will likely pressure the RBA into an upsized rate increase at their next meeting on August 2.USD Performance YTD
Country Value vs USD Canadian Dollar -0.85% Australian Dollar -3.17% Swiss Franc -4.60% Euro -9.32% British Pound -10.45% Japanese Yen -15.35%
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