Weekly Market Watch emails

Week starting 03-07-2023

We have excluded the Russian Ruble from the analysis in our report due to the extreme volatility associated with the currency.

USD

• Last week, the US Dollar strengthened against 13 of the top 19 currencies we monitor. The greatest gains were against the Turkish Lira (TRY) (1.61%) and the Chinese Yuan (CNY) (1.04%), whilst the largest moves to the downside were against the Norwegian Krone (NOK) (-0.31%) and the Mexican Peso (MXN) (-0.30%).


• The focus last week was on the release of the US Federal Reserve's main measure of inflation, the personal consumption expenditure (PCE), which indicated a slightly lower rate of inflation for May. This aligns with the Federal Reserve's strategy of using higher interest rates to manage inflation. While this data alone could have led to weakness in the US Dollar, it was overshadowed by a meeting of central bank governors where Federal Reserve Chair, Jerome Powell, indicated the likelihood of two additional 25 basis point (bps) interest-rate hikes this year. As anticipated, this news prompted the USD to strengthen in the market. Furthermore, on Thursday, Q1 US GDP showed a robust 2% growth, reinforcing the notion that the US economy is not currently heading towards a recession.


• The focus this week will be on key employment data in the US. On Thursday, the Job Openings and Labour Turnover Survey’s (JOLTs) results will be released, and it is anticipated that the number of open jobs will remain high. This will be followed by the highly significant nonfarm payrolls data on Friday, with market expectations set at 225,000. It is worth noting that the market has consistently underestimated the strength of the US employment situation this year, as the actual figures have consistently surpassed the estimates. If we observe another surpassing of the nonfarm payroll figures, it is likely to contribute to further strength in the USD. On Wednesday, the Federal Open Market Committee (FOMC) meeting minutes will be released, offering insights into the Federal Reserve's outlook. It is anticipated that the minutes may hint at the possibility of future rate hikes, which could further bolster the USD.

EUR

• Last week, the Euro strengthened against 14 of the top 19 currencies we monitor. The most significant gains were against the TRY (1.58%) and the CNY (1.23%), whilst the greatest moves to the downside were against the NOK (-0.62%) and the Indian Rupee (INR) (-0.56%).


• The week started with a speech by European Central Bank (ECB) President Christine Lagarde at the ECB forum on central banking. Throughout the week, various ECB officials delivered speeches, including Lagarde, Panetta, Elderson, Schnabel and Guindos. On Thursday, the economic sentiment indicator for June was reported, showing a slight decline from the previous month. On Friday, flash estimates for key inflation indicators were released, including the inflation rate year-on-year, core inflation rate year-on-year, and inflation rate month-on-month for June, all of which showed moderate changes compared to previous values. The unemployment rate for May remained unchanged.


• This week, there will be minimal data from the EU. We will mostly focus on retail sales data for May, which is expected to show a slight increase, but nothing too noteworthy. Overall, the EUR will take direction from US data more than local data.

GBP

• Last week, the British Pound weakened against 11 of the top 19 currencies we monitor. The most notable moves to the downside were against the NOK (-0.93%) and the MXN (-0.45%), whilst the largest gains were against the TRY (1.31%) and the CNY (0.96%).


• Last week, there was limited significant data in the UK. However, notable events included speeches by Bank of England (BoE) officials, such as Huw Pill and BoE Governor Andrew Bailey. The current account for Q1 revealed a larger deficit of £10.757 billion, while the GDP growth rates for Q1 remained stable, showing a 0.1% increase quarter-on-quarter and a 0.2% increase year-on-year. These indicators collectively indicate a mixed economic performance in the UK, with both positive and negative trends observed.


• There are no significant data events anticipated in the upcoming week that could have a major impact on the GBP. Therefore, it is expected that the GBP will maintain a relatively stable position from a local perspective. However, global factors such as the US employment situation could potentially influence the market. Nevertheless, barring any unforeseen events, the overall outlook for the GBP is expected to remain relatively stable.

ZAR

• Last week, the South African Rand weakened against 16 of the top 19 currencies we monitor. The greatest moves to the downside were against the NOK (-1.33%) and the Swiss Franc (CHF) (-0.86%), whilst the most impactful gains were against the TRY (0.89%) and the CNY (0.21%).


• There were no major updates for local data. Consumer confidence for Q2 declined to -25, indicating a decrease in consumer sentiment. The producer price index (PPI) showed a positive month-on-month change of 0.6% in May. The balance of trade for May displayed significant improvement, with a surplus of R10.2 billion exceeding previous values and consensus forecasts. These indicators reflect mixed sentiment in consumer confidence and varied performance in the South African economy along with positive trade balance and changes in credit and money supply. Additionally, the currency has experienced significant devaluation over the past two weeks, following a strong performance earlier, which can be attributed to global factors, particularly statements from central bank leaders in the US and EU indicating potential future interest rate hikes.


• There will be minimal data from South Africa this week, so the currency is likely to be influenced by global factors. Given the recent weakness observed in the past two weeks, there is an expectation that the ZAR could strengthen in the coming week unless any unexpected events occur. However, it is important to note that the US employment data towards the end of the week may result in volatility in the currency.

AUD

• Last week, the Australian Dollar weakened against 12 of the top 19 currencies we monitor. The most significant moves to the downside were against the NOK (-0.99%) and the MXN (-0.52%), whilst the most notable gains were against the TRY (1.17%) and the CNY (0.65%).


• On Wednesday, the monthly consumer price index (CPI) indicator for May was released, showing a decrease from the previous month but remaining higher than the consensus forecast. Thursday's data revealed that retail sales had increased month-on-month in May surpassing both the previous month's value and the consensus forecast. Finally, on Friday the housing credit for May demonstrated a slight decline compared to the previous month but aligned with the consensus forecast. Overall, the data suggests a mixed picture for the Australian economy, with inflation moderating, retail sales showing growth, and stable housing credit.


• This week, all eyes will be on the Reserve Bank of Australia (RBA) interest rate decision. Here, the market has now priced in a 25 bps hike after the surprise hike in the previous month. If the RBA does not increase rates this will result in AUD weakness, so we remain cautious of this event.

If you would like further information on the market along with personalised hedging strategies for you or your business, you can get in touch with our team at fxhedging@sableinternational.com.