FX UPDATE 17/07/2023

Following its worst weekly decline of the year last week, the Dollar took respite on Monday as traders braced for economic data and policy announcements before selling it down further. The Euro held just below a 16-month high at $1.1223 after rising 2.4% last week, whilst the Yen, which also rose 2.4% last week, was trading at 138.56 at the time of writing. The Dollar index – measuring the currency against six peers – fell 2.2% last week, the steepest one-week decline since November, and in Asia trading stood at 99.936, Reuters reports. “The Dollar may remain on the backfoot as the market re-positions itself for a less hawkish Fed,” stated Rabobank's head of FX strategy, Jane Foley. “That said, the outlook for the latter few months of the year is less clear cut.”

Sterling faces another key economic release this week, as CPI inflation is released for June, which will be key in determining whether the Bank of England will announce a second consecutive 50 basis point rate rise next month. So far this year, the Pound has rallied as UK inflation has been more resilient than forecast, leading the Bank of England to adopt a more aggressive monetary policy stance by raising interest rates and abandoning cautious guidance. The inflation data “will prove a crucial test for the Pound,” according to Justin McQueen, a Reuters market analyst. CPI is predicted to have increased 8.2% year-on-year last month, a fall from 8.7%, whilst core inflation is forecast to have dipped to 6.8% from 7.1%, Pound Sterling Live reports. “Currently, markets see a 50bp BoE rate hike at the August meeting as more likely than not. However, this will be dependent on (the) inflation figures,” McQueen added.?

In South Africa, the Rand was marginally weaker in early Monday trade, ahead of local inflation data due out on Wednesday and a rate decision announced a day later. The Rand was trading at 18.1025 against the Dollar at the time of writing, around 0.1% down from the previous close. Last week the Rand gained 4% against the greenback, fuelled by bets the Federal Reserve will hike rates just once more due to an inflation slowdown in the US economy.

In India, the Rupee remained within a narrow range, at 82.1600 to the Dollar at the time of writing, not far off Friday’s 82.1650. The Rupee had edged up at the start of trading and briefly declined close to 82.20. “82.20-82.30 will see a round of offers (on USD/INR) and should mostly hold for the time being,” according to an FX trader. Following a rise in US yields and weaker data from China, Asian currencies started the week on the defensive. Indeed, US yields rose following fortnight-lows on Friday as consumer inflation forecasts mounted, Reuters reports. The preliminary reading of one-year inflation expectations by the University of Michigan moved up to 3.4% in July from 3.3% in June. “It's difficult to put any comforting spin on the lift in US household one-year-ahead inflation expectations... when the consensus had been for a fall,” according to ANZ analysts. Whereas the offshore Chinese Yuan fell to 7.18 to the Dollar as GDP data bolstered indications of a loss in economic momentum.??