The inverted yield curve has yet again led to US dollar buying; a historical pattern which has repeated as discussed here in the Quantitative Insights section of SVB’s last FX Quarterly Outlook. The Bloomberg Dollar Spot index (BBDXY) gained 1% last week with the greenback continuing its broad rally. If there is an absence of significant news in the Russian/Ukraine war, this week’s economic data, central bank meetings and corporate earnings will drive currency exchange rates as traders position for the Fed meeting and press conference on July 27.
Important Economic Data/Events this Week:
Tuesday: US Housing Starts and Building Permits for June; UK employment for June
Wednesday: US Existing Home Sales for June, UK and Canadian CPI for June
Thursday: Philly Fed Business Outlook for July, Weekly Initial Jobless Claims, ECB rate decision, Japan CPI for June
Friday: S&P Global PMI for July, UK and Canadian Retail Sales for June
July 18, 2022
Rates are not real time. Rates are today's indicative mid-market rates as of time of publishing, which may vary. Please contact SVB for a current quote.
EUR/USD 1.0176 GBP/USD 1.2009 USD/CAD 1.2932 AUD/USD 0.6845 USD/JPY 138.08 USD/CNH 6.7470 USD/ILS 3.4432 USD/MXN 20.3992 USD/CHF 0.9745 USD/INR 79.9775 USD/BRL 5.3670 USD/SGD 1.3954 USD/DKK 7.3139 USD/SEK 10.3316 USD/NOK 10.0438
The US dollar enjoyed broad gains last week as investors moved away from risk assets and into safe haven investments and currencies. Inflation rose again printing 9.1% despite the surging US dollar. Unlike the euro, pound, and other currencies where a weaker currency exacerbates inflation, the US faces higher prices and high demand for the greenback. Financial markets look to the FOMC meeting/press conference next Wednesday with speculators betting on either a 0.75% or 1.00% rate hike.GBP
Last week the pound hit lows not seen since the early days of the pandemic and traded below 1.20. A combination of USD strength and uncertainty around Boris Johnson's replacement added to longer-term worries about the lingering effect of Brexit. Employment data on Tuesday and CPI on Wednesday will be in focus as the Bank of England prepares to meet next on August 4.EUR
The euro briefly crossed through parity with the US dollar and is 11% lower than where it started the year. The prospect of a complete shutoff of Russian energy supplies to Europe has investors betting on a recession. The ECB meets on Wednesday with expectations ranging from a signal that rates will head higher to a surprise 0.25% hike. The central bank must also weigh the impact on sovereign debt and hopes to keep Italian bonds yielding close to their German counterpart.CAD
The Bank of Canada surprised the markets last week with a 1.00% increase. The loonie lost ground anyway to the US dollar as the price of oil is down 20% since early June. The price of WTI fell 6% last week and is off 20% since its June 14 high. Expect significant volatility in the price of oil and perhaps CAD as Russia threatens to cease all energy deliveries to Europe and recession fears grip energy demand.ASIA/PACIFIC
The Japanese yen fell again last week to levels not seen since the early 1990s. Central bank divergence continues to be a key driver for yen weakness with the Bank of Japan signaling easy monetary policy to continue while most other central banks are raising rates. The Bank of Japan meets Thursday when interest rates will likely be held at zero.
The Chinese renminbi lost 1% last week as Q2 GDP numbers came in at a disappointing + 0.4%. China's zero tolerance for COVID cases is weakening an already soft economy.YTD currency performance
YTD Range Since Jan.1 2022
EUR 0.9991 - 1.1465 -10.69%
GBP 1.1780 – 1.3713 -11.47%
CAD 1.2288 – 1.3224 -2.57%
AUD 0.6682 – 0.7661 -5.89%
JPY 108.72 – 139.39 -16.72%
CNH 6.3060 – 6.8380 -5.64%
ILS 3.0410 – 3.5481 -10.15%
MXN 19.41 – 22.15 +0.74%
CHF 0.9019 – 1.0065 -6.47%
For more analysis on FX markets or information regarding SVB's FX services:
See all of SVB's latest FX information and commentary at www.svb.com/foreign-exchange-advisory
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