DXY
The dollar index experienced a slight decline, reaching 103.3 on Thursday. This followed its recent peak of 103.6, a two-month high, which occurred subsequent to the release of the Federal Reserve's minutes from the July meeting. These minutes revealed a notable emphasis from policymakers on the persistence of upward inflation risks. This underscores the potential for future adjustments in monetary policy to counter these inflationary pressures. However, it's important to note that within the ranks of policymakers, concerns were raised about the potential negative economic consequences of excessively aggressive interest rate hikes. This serves as a reminder that any forthcoming decisions regarding interest rates will be contingent upon the incoming economic data.
In the realm of economic indicators, the latest data exhibited a decline in weekly claims, signaling a robust labor market. Notably, the euro rebounded from its six-week lows, while the sterling continued its upward momentum for the third consecutive session. Simultaneously, the Canadian dollar managed to distance itself from its recent two-month lows.
Conversely, the Australian dollar faced a decline following the release of data indicating a rise in the Australian unemployment rate to 3.7% in July, reaching a three-month high. This data could potentially impact the currency's performance in the near term.
The Sterling Pound
The British pound maintained its proximity to the $1.275 threshold, exhibiting a modest strengthening from its recent one-month low of $1.268 registered on August 10th. This movement was driven by the latest Consumer Price Index (CPI) report, which provided added support for the hawkish stance within the Bank of England's Monetary Policy Committee (MPC). The CPI data unveiled a 6.8% increase in consumer prices within the United Kingdom during July. This aligns with market projections and represents a decrease from the 7.9% seen in the previous month, primarily attributed to base effects stemming from elevated fuel prices in the comparison period.
However, it's noteworthy that core inflation metrics showed resilience, holding steady at 6.9%. This outcome raises concerns about the persistence of inflationary pressures in critical sectors of the economy. These findings align with prior releases indicating a rapid surge in wages, bolstering expectations that the Bank of England might opt to maintain elevated interest rates for an extended duration.
The Euro
The Euro slid beneath the $1.09 mark, drawing closer to its lowest point in a span of six weeks. This movement followed the release of the Federal Reserve's minutes from their July meeting, which hinted at the possibility of further interest rate hikes by the US central bank due to notable inflationary risks. In contrast, the European investment landscape is marked by a division among investors regarding the European Central Bank's (ECB) potential decision to enact another interest rate increase. This uncertainty stems from the deteriorating economic forecast within the region.
Recent data indicated that core inflation within the Euro Area did not decelerate as initially projected for the month of July. This contrasts with the ongoing weak economic indicators, particularly concerning Germany. Meanwhile, during the July ECB meeting, President Lagarde announced the removal of guidance indicating a steady ascent in borrowing costs. Instead, she emphasized that the outcome in September could either involve a halt in rate changes or an increase, further adding to the current market uncertainties.
The Aussie
The Australian dollar experienced a decline below the $0.64 threshold, descending to its lowest point in a span of over nine months. This downward movement was prompted by the release of data indicating that the nation's unemployment rate reached a three-month peak of 3.7% in July. This exceeded earlier predictions, which had forecasted a more modest increase to 3.6%. Adding to this pressure, the Australian dollar faced challenges from widening yield differentials relative to the US. This was brought about by the insights gleaned from the Federal Reserve's minutes from their July meeting, wherein policymakers highlighted the persistence of inflationary risks. This stance left the door open for potential further tightening of monetary policy.
Furthermore, the Australian dollar was influenced by indications of economic fragility in China, which serves as Australia's principal trading partner. The lack of substantial supportive measures from Beijing contributed to the currency's decline as well. Earlier in the current month, the Reserve Bank of Australia chose to maintain its policy rate at 4.1%, deviating from market expectations for a 25 basis point rate increase. The RBA's decision stemmed from the board's desire to assess the repercussions of previous rate hikes on the broader economy before proceeding with further adjustments.
The Yen
Not so Much has changed By the Way. at the moment, the main influence, or the determinant factor is the USD. Nonetheless, the Japanese yen exhibited a decline below the 146 per dollar threshold, stabilizing at its least elevated points over a duration of nine months. This trading range is reminiscent of the levels that prompted Japanese authorities to intervene within the currency markets back in September of the previous year. During that intervention, the Ministry of Finance executed a substantial purchase of yen amounting to $19.5 billion, a measure taken to lend support to the currency as it weakened to 145.9 on September 22.
Throughout this year, the Japanese yen has consistently faced downward pressure, largely attributed to the widening disparity in yield between Japan and other major economies. While prominent central banks pursued an assertive approach towards tightening monetary policy, the Bank of Japan retained its stance of highly accommodative measures. This persistent divergence has contributed to the yen's depreciation. Even subsequent to a surprising adaptation to its yield curve control policy by the Bank of Japan, which effectively permitted 10-year Japanese Government Bond (JGB) yields to exceed the previously imposed 0.5% upper threshold, the yen continued to weaken.
Adding to these challenges, recent data illustrated a decline in Japanese exports for the first time since February 2021 during the month of July. This decline was coupled with a notable drop in imports, the most significant decrease witnessed in nearly three years.
The Loonie
Just like the Yen, I havent any massive changes with the Loonie and the main asset causing moves from the CAD is USD. Still, as i reported in our previous article, the Canadian dollar slipped below the 1.35 per USD threshold, reaching its lowest point in a span of more than two months. This downward movement was spurred by the sustained strength of the greenback, propelled by speculations that the Federal Reserve will uphold higher interest rates for an extended duration. Concurrently, the decline in oil prices from their recent highs added to the pressure on the Canadian dollar. Furthermore, Canada registered its largest trade deficit since November 2020, underscoring the considerable net outflows of the domestic currency from the economy. This scenario exerted additional strain on the Canadian dollar, also known as the loonie.
Conversely, Canada experienced a higher-than-anticipated increase in the annual inflation rate for July, and the core inflation rate did not decelerate as initially projected. This outcome presents a spectrum of potential options for the Bank of Canada. As the central bank contemplates the necessity for another rate hike in September, the diverse array of possibilities remains open.
The Kiwi
The New Zealand dollar was in motion around the $0.5911 mark on Thursday, maintaining its downward trajectory for the eighth consecutive trading session. This persistence in decline has positioned it at its most subdued level in over a span of nine months. This weakening has been aligned with the robust performance of the US dollar, propelled by the resilience of the US economy. This strength has further emphasized the requirement for the Federal Reserve to sustain higher interest rates over an extended period.
Furthermore, the local currency followed suit with a decline observed in the Australian dollar. This decline was in response to Australia's unexpected reduction in employment during July, coupled with a simultaneous increase in the jobless rate, which reached its highest point in three months.
On a domestic level, the Reserve Bank of New Zealand (RBNZ) elected to maintain the official cash rate at 5.5% for the second consecutive month during the previous Wednesday. This decision comes after a cumulative increase of 525 basis points since the previous year, spanning 2021. In an interview, Governor Adrian Orr communicated the necessity for restrained consumer spending, limited business investment, and governmental fiscal discipline to effectively alleviate cost pressures. Looking ahead, he projected a contraction of 0.3% for the domestic economy in the third quarter and a marginal 0.1% contraction in the fourth quarter. These projections indicate the likelihood of the nation experiencing its second recession within a slightly over one-year span.
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