16 August 2022
Heightened fears surrounding a slowdown in global growth, and possible recessions, were once again back dominating the narrative in the FX market on Monday. Summary:
Currencies reacted as they usually do during times of rising stress or market uncertainty, with the high-risk major and emerging market currencies selling off against the safe-havens, notably the US dollar and Japanese yen. Among the worst performers were the antipodean ones, which have close trade relations with China, and those in Europe, particularly in the CEE. The currencies in the latter were hit by the double whammy of weak Chinese economic data and another move higher in European natural gas prices, which have more than doubled since mid-June. The euro managed to hold up slightly better than its European counterparts, although the EUR/USD pair still dropped back below the 1.02 mark on Monday, and has now erased all of its gains following last Wednesday’s US inflation report.While the dollar was firmly on the back foot following last week’s weaker-than-expected US inflation print, a handful of hawkish FOMC member speeches have helped spark a reversal in these losses in the past few trading sessions. The likes of Kashkari and Daly suggested late-last week that the data wouldn’t necessarily persuade them from voting in favour of third consecutive 75 basis point rate hike at the Fed’s September meeting. We favour a 50bp move, although markets appear fairly torn, with futures still pricing in between a 40-45% chance of a larger hike during the London session yesterday. This Wednesday’s US retail sales print may help guide these expectations, as could the July meeting minutes set for release on the same day. In the meantime, a handful of major economic data releases could move markets in the next few days. We will be paying particular close attention to the latest UK labour report (Tuesday), and inflation numbers (Wednesday). We see a decent chance that the headline inflation number may have tipped into double-digits last month (9.8% expected). In our view, this would all but guarantee another 50 basis point interest rate hike from the Bank of England at its next meeting in mid-September.
- Safe-haven US dollar rallies against most of its peers, as weak Chinese macroeconomic data heightened concerns over global growth
- European currencies underperform, as natural gas prices march to fresh highs
- EUR/USD dips back below 1.02 level, erasing all of its gains following last week’s softer-than-expected US inflation report
- UK labour data this morning could move the pound, as investors await Wednesday’s all-important inflation report for July
Currencies reacted as they usually do during times of rising stress or market uncertainty, with the high-risk major and emerging market currencies selling off against the safe-havens, notably the US dollar and Japanese yen. Among the worst performers were the antipodean ones, which have close trade relations with China, and those in Europe, particularly in the CEE. The currencies in the latter were hit by the double whammy of weak Chinese economic data and another move higher in European natural gas prices, which have more than doubled since mid-June. The euro managed to hold up slightly better than its European counterparts, although the EUR/USD pair still dropped back below the 1.02 mark on Monday, and has now erased all of its gains following last Wednesday’s US inflation report.While the dollar was firmly on the back foot following last week’s weaker-than-expected US inflation print, a handful of hawkish FOMC member speeches have helped spark a reversal in these losses in the past few trading sessions. The likes of Kashkari and Daly suggested late-last week that the data wouldn’t necessarily persuade them from voting in favour of third consecutive 75 basis point rate hike at the Fed’s September meeting. We favour a 50bp move, although markets appear fairly torn, with futures still pricing in between a 40-45% chance of a larger hike during the London session yesterday. This Wednesday’s US retail sales print may help guide these expectations, as could the July meeting minutes set for release on the same day. In the meantime, a handful of major economic data releases could move markets in the next few days. We will be paying particular close attention to the latest UK labour report (Tuesday), and inflation numbers (Wednesday). We see a decent chance that the headline inflation number may have tipped into double-digits last month (9.8% expected). In our view, this would all but guarantee another 50 basis point interest rate hike from the Bank of England at its next meeting in mid-September. To stay up to date with our publications, please choose one of the below:
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