This week, global currencies and commodities experienced varied movements. The USD held steady, influenced by positive labor data. The EUR faced pressure from cautious ECB policies, while the GBP showed mixed performance amid UK economic concerns. The JPY weakened due to expectations of continued loose monetary policy, and the AUD gained ground on hawkish RBA signals and positive Chinese inflation data. The CNY weakened slightly, and gold prices remained range-bound. Here’s a quick snapshot of these market dynamics.
USD (US Dollar)
- The USD experienced a volatile trading week, largely influenced by stronger-than-expected labor market data that alleviated some fears of an impending U.S. recession.
- The Dollar Index (DXY) remained stable, closing the week around the 103.00 mark. The stability was supported by a decrease in initial jobless claims, which came in at 227,000, below the anticipated 230,000.
- This data bolstered the USD as it highlighted continued strength in the U.S. job market. All eyes will be on key U.S. inflation data, particularly the Consumer Price Index (CPI) scheduled for release on Wednesday.
- The CPI is expected to increase by 0.2% month-over-month for July, reflecting a 3.2% year-over-year rise, a slight uptick from the previous month’s 3.0%. If the data shows a cooling in inflation, it could reinforce market expectations for a potential rate cut by the Federal Reserve in September.
- However, the narrative is complicated by comments from Fed officials like Michelle Bowman, who have warned that inflation risks may persist, suggesting the possibility of further rate hikes. The outcome of the CPI data will therefore be crucial in shaping market expectations.
EUR (Euro)
- The Euro experienced fluctuations throughout the week but ultimately ended slightly lower against the USD.
- The European Central Bank’s (ECB) cautious stance on monetary policy, coupled with a drop in Italian consumer prices in July (which declined by 0.1% month-over-month), signaled limited inflationary pressures within the Eurozone.
- The Euro was further pressured by concerns over stagnant growth in key economies such as Germany, where industrial production fell by 1.5% in June, compared to the expected 0.5% decline.
- Traders will focus on a series of economic releases from the Eurozone, including the German ZEW Economic Sentiment Index and the Eurozone Industrial Production figures.
- The German ZEW is expected to show a slight improvement to -14.5 from the previous -14.7, while industrial production for the Eurozone is anticipated to decline by 0.2% month-over-month.
- Additionally, the EUR/USD pair will be heavily influenced by U.S. inflation data and its subsequent impact on the USD. Any hawkish surprises from the ECB could also provide support for the Euro, but the overall sentiment remains cautious.
GBP (British Pound)
- The GBP saw a mixed performance, recovering toward the end of the week after touching a one-month low of 1.2620 against the USD.
- Persistent concerns over the UK's economic outlook, including stagnant GDP growth (0.0% month-over-month in June) and ongoing inflationary pressures (with headline CPI at 7.9% year-over-year), have kept the Pound under pressure.
- The GBP will remain sensitive to UK-specific data, especially the upcoming GDP figures for Q2, which are expected to show a marginal growth of 0.1% quarter-over-quarter.
- Additionally, market participants will closely monitor the UK inflation report due later in the week, with expectations that core inflation will remain sticky around 6.8% year-over-year.
- The ongoing inflation concerns may prompt further tightening by the Bank of England, which could provide some upside for the GBP/USD pair.
- However, the Pound's performance will also be closely tied to broader global risk sentiment and USD movements.
?JPY (Japanese Yen)
- The JPY weakened over the week, particularly as trading volumes were thin due to the Mountain Day holiday in Japan.
- Despite some safe-haven inflows driven by Middle East tensions, the Yen’s performance was dampened by expectations that the Bank of Japan (BoJ) will maintain its ultra-loose monetary policy.
- The USD/JPY pair briefly touched 144.60 before settling lower as U.S. Treasury yields eased. The JPY is expected to react to global risk sentiment and any developments in U.S. monetary policy, particularly in light of the upcoming CPI data.
- The currency could see some support from safe-haven flows, especially if geopolitical tensions escalate.
- However, the Yen may remain under pressure if the BoJ continues to signal a cautious approach to tightening, with no major changes expected in the upcoming BoJ meeting. Additionally, Japan’s Q2 GDP data is due for release, with expectations of 3.1% annualized growth, which could influence the Yen’s trajectory.
AUD (Australian Dollar)
- The AUD showed resilience, appreciating against the USD due to a hawkish tone from the Reserve Bank of Australia (RBA) and positive inflation data from China, Australia’s largest trading partner.
- The RBA’s decision to keep rates on hold was accompanied by a signal that further tightening could be necessary, which supported the AUD. Additionally, China’s Consumer Price Index showed a year-over-year increase of 0.2%, alleviating some concerns about deflation.
- The AUD could benefit from any further hawkish signals from the RBA, particularly if upcoming wage growth data surpasses expectations. However, the currency may face headwinds from safe haven flows amidst ongoing geopolitical tensions, which could limit its upside.
- Market participants will also closely monitor Chinese economic data, including industrial production and retail sales figures, with the latter expected to grow by 4.2% year-over-year. Any negative surprises from China could weigh on the AUD.
CNY (Chinese Yuan)
- The CNY weakened slightly as skepticism over China’s economic outlook continued to weigh on the currency.
- The People’s Bank of China (PBoC) provided some support by maintaining liquidity in the market, but the USD/CNY pair still rose by 0.2% to 7.1660.
- Concerns over sluggish domestic demand and a softening property market remain significant risks for the Yuan. Traders will focus on upcoming Chinese economic data, including industrial production, which is expected to show a year-over-year increase of 4.3%, and retail sales, forecasted to grow by 3.6% year-over-year.
- These figures will provide further insights into the health of China’s economy. A better-than-expected performance could stabilize the Yuan, but any disappointment could lead to further depreciation, especially if U.S. economic data remains robust.
Gold (XAU/USD)
- Gold prices struggled to gain momentum, trading within a narrow range between $1,930 and $1,950 per ounce.
- While geopolitical tensions provided some support, a generally positive tone in equity markets, along with stable U.S. Treasury yields, limited the upside for the safe-haven metal.
- Gold’s direction will likely be influenced by U.S. inflation data and the Federal Reserve’s monetary policy outlook. If the CPI indicates lower inflation, this could heighten expectations for rate cuts, potentially providing a boost to gold prices.
- Conversely, if inflation remains elevated, gold could face downward pressure as higher rates increase the opportunity cost of holding non-yielding assets. Market participants will also watch for any geopolitical developments that could increase safe-haven demand, with key resistance levels for gold seen at $1,960 and support at $1,920.
Outlook Summary:
- USD:?Poised to remain in focus with critical CPI data on the horizon, potentially setting the tone for rate cut expectations.
- EUR & GBP:?Likely to be sensitive to both U.S. data and local economic indicators, with a particular focus on inflation and growth figures.
- JPY:?May see support from safe-haven flows but could remain under pressure due to the BoJ's cautious monetary policy approach.
- AUD:?Strength will depend on RBA messaging and Chinese economic data, with risks from geopolitical tensions.
- CNY:?Will react to China’s economic data, with potential risks if the outlook continues to weaken.
- Gold:?May find support if U.S. inflation cools, reinforcing the possibility of Fed rate cuts, but faces resistance from equity markets and stable Treasury yields.
This week's market movements will largely be driven by key economic data releases and ongoing geopolitical developments, making it a pivotal period for currency markets.
The weekly market update is published every Monday. If missed due to unforeseen circumstances, it will be posted the following day.
This is for informational purposes only and should not be interpreted as specific investment advice.
While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.
Past performance does not guarantee future results.
Diversification does not guarantee a profit or protect against loss.
Special risks are inherent to currency fluctuations, foreign political and economic events
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