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Currencies included: USD, EUR, GBP, ZAR, AUD and NZD
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Important events and predicted effects on currencies
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Market predictions and forex forecasts for the week of 20 June 2022.
Week starting 20-06-2022
We have excluded the Russian Ruble from the analysis in our report due to the extreme volatility associated with the currency.
- The United States Dollar had major upside movements after a larger-than-expected hike in the US Fed rate. The USD strengthened against 17 of the top 19 currency pairs. The largest gains were against the Brazilian Real (BRL) (3.37%) and the AUD (2.25%), whilst the two losses were against the Swiss Franc (CHF) (-1.82%) and the Indian Rupee (INR) (-0.25%).
- The main event from the past week was the 75-basis-point (bps) hike by the US Federal Reserve. Although it was being priced in, after a high inflation figure the previous week, the USD rallied in the lead-up to the decision. After the event, the USD was sold off slightly, as a classic case of “buy the rumor, sell the fact” – where traders take profits on their positions and the market reverses its trajectory. This reverse was short lived as the USD came back and ended the week in the green.
- After the big week it just had, the US doesn’t have much data releasing this week. Due to a bank holiday on Monday, market liquidity will be low. US Fed Chair, Jerome Powell, will testify in front of congress on Wednesday. He is expected to reiterate the Feds’ commitment to remain data driven and the speed at which they will adjust policy according to the data.
- The Euro had a positive week, strengthening against 14 of the top 19 currency pairs. The most notable gains were against the BRL (3.05%) and the Norwegian Krone (NOK) (3.03%), with the most impactful losses against the CHF (-1.96%) and the INR (-0.47%).
- The EUR strengthened due to multiple comments from European Central Bank (ECB) President, Christine Lagarde, that the ECB will be raising interest rates for the first time in over a decade. This impending move gains credibility with Euro Area inflation data coming in at 8.1% (YoY) on Friday, thus the ECB needs to do something to try and curb the rising prices in the market.
- This week, we will monitor if the market maintains its positive outlook on the EUR. Otherwise, there will be minimal significant data from the Euro Area and the Euro will be influenced by geopolitical issues.
- The Pound strengthened against 11 of the top 19 currencies last week. The largest gains were against the BRL (2.57%) and the NOK (2.24%), while the greatest losses were against the CHF (-2.38%) and the INR (-1.01%).
- The GBP strengthened due to a 25-bps hike by the Bank of England (BoE). Although this was priced in, the market wanted more aggression from the central bank, especially since other central banks have been surprising the market in a positive way. The BoE has a though job to do, given that the UK GDP contracted on a month-on-month basis, so it does not want to stifle the economy by raising rates too aggressively, yet it also needs to keep inflation in check.
- This week, the main event is the UK inflation data, which will be released on Wednesday. Inflation is expected to increase by 9.1% (YoY) and 0.6% (MoM). Any surprise to the upside might force the BoE to raise interest rates more aggressively. Additionally, the retail sales data will be released on Friday, which is expected to drop and does not bode well for the UK economy.
- The South African Rand had a modest decline, weakening against 11 of the top 19 currency pairs. The ZAR strengthened most significantly against the BRL (2.24%) and the NOK (1.94%), while weakening most notably against the CHF (-2.91%) and the Chinese Yuan (CNY) (-1.46%).
- Recent central bank activity has led to continued weakness in the South African Rand. With central banks in both the US and UK opting to raise their benchmark interest rates, investors have moved away from emerging-market currencies. Consequently, the ZAR ended in the red against all major developed-market rivals. For South African data, business confidence retail sales data both dropped, which weighed on the ZAR.
- This week, South African inflation data will be released on Wednesday. This is expected to rise, which would pressure the SARB to raise interest rates in the short term.
- The Australian Dollar had a dismal week, with the currency weakening against 13 of the top 19 currency pairs. The largest gains were against the BRL (1.69%) and the NOK (1.36%) while the major losses were against the CHF (-2.92%) and the INR (-1.77%).
- Australia had a quiet week, starting off with a holiday on Monday. The remainder of the week had disappointing data, with a drop in both the business and consumer confidence indices, as well as an increase in the unemployment rate.
- This week, the RBA meeting minutes will be released on Tuesday, which should give the market some indication as to the trajectory of future interest rate moves.
- The New Zealand Dollar had a good week, strengthening against 11 of the top 19 currency pairs. The most notable gains were against the NOK (2.35%) and the Mexican Peso (MXN) (1.27%) while the greatest losses were against the CHF (-2.41%) and the CNY (-1.00%).
- The main event from the past week was a disappointing print for New Zealand’s growth, with GDP contracting by 0.2% (QoQ).
- This week, the New Zealand balance of trade for May will be released on Wednesday, which is expected to show an improvement in terms of trade, which could be NZD positive.
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