Central bankers, along with everyone else, are looking for ways to cool off from both the summer heat and scorching hot inflation numbers. A blow-out US Jobs report has markets eyeing this week’s US CPI numbers. If CPI continues to print high, the Fed will look for more aggressive ways to cool down inflation. Over the weekend, the US Senate passed a tax, healthcare and climate spending bill. China continues protest of Speaker Pelosi’s visit to Taiwan.
Economic Releases this week:
Wednesday: US CPI, MBA Mortgage Applications
Thursday: PPI Final Demand
Friday, UK GDP, FR CPI, GE CPI
EUR/USD hit parity on 12 July 2022. This has happened once before and parity was not the bottom. The euro was launched on 1 January 1999 at a rate of 1.1686. Within a year of its inception, the euro broke parity once on 2 December 1999 and less than a year later, the euro hit its all-time low of 0.8230 on 26 October 2000.
Last Week's Range
EUR/USD 1.0166-1.0262 GBP/USD 1.2073-1.2250 USD/CAD 1.2843-1.2932 AUD/USD 0.6911-0.7023 USD/JPY 131.61-135.01 USD/CNH 6.7511-6.7837 USD/ILS 3.3307-3.3773 USD/MXN 20.3465-20.8180 USD/CHF 0.9496-0.9615 USD/INR 78.71-79.47 USD/BRL 5.1639-5.2840
Dollar buying interest resumed the end of last week following a blow-out US Jobs report. US economy added 528K jobs (vs. 250K expected) and unemployment sank to 3.5% all but confirming the Fed will stay on track with 75bp rate increases. This week’s upcoming CPI print holds the markets' attention to see if Fed tightening has had any impact on inflation. Market view is that the faster the tightening, the probability of a hard landing rises. A hard landing could lead to pressure on US equities and furthering of USD strength – as seen following past rate increases. Weekend bill passed by the Senate yesterday is a skeletal version of Biden’s promised agenda – passed amid the backdrop of looming recession and high inflation in an effort to boost sentiment ahead of mid-term elections this fall.GBP
Eyes were on the Bank of England this week as traders remained unsure about the economic outlook. BoE delivered a 50bp hike and predicted the UK will remain in recession for the next five quarters. Headwinds for cable include uncertainty in the future of the government, an impending energy crisis this winter, and expectations that the pound falls to historic lows in the coming months.EUR
Euro ends the week down and within a 200 pip trading range set mid-July. Not even strong employment numbers could break the pair out of the narrow range. The ECB remains adamant that the EU will not fall into recession. Up next week are Germany July CPI numbers which are expected to show a 7.5% YoY increase.CAD
Despite a strong jobs beat in the US, our northern neighbors did not fare as well, as a same day report showed employment unexpectedly fell for a second straight month. The currency fell sharply vs. the greenback on Friday. BoC’s response is in the forefront as a second straight month of contraction may or may not change expectations for 100bps of hikes at the next two meetings.ASIA/PACIFIC
Yen fell sharply as US treasury yields surged following Friday’s jobs report. The pair gave up 1.7% on Friday as haven demand shifted to the USD on expectations of further Fed hikes.
China positioned war ships in reaction to Nancy Pelosi’s visit to Taiwan. Any political visit to Taiwan is viewed as undermining the Chinese government. New air and sea military exercises continued over the weekend and will continue this week, as China protests Speaker Pelosi’s visit to Taiwan.USD strongest point YTD
Currency Value vs. USD Date USD Change Since CAD 1.3224 14-Jul -2.9% AUD 0.6682 14-Jul -4.6% CHF 1.0065 16-May -5.2% EUR 0.9952 14-Jul -2.5% GBP 1.176 14-Jul -3.1% JPY 139.39 14-Jul -3.5% CNH 6.838 13-May -1.2%
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