Nieuws en Analyses

GBP

Following last week’s Bank of England meeting and a stronger US payrolls report, the pound has fallen back towards our one-month forecast. In response to the Bank’s latest monetary policy decision, which had forecasts signal further rate hikes heading into a prolonged recession, we highlighted how the stagflationary mix of higher interest rates and lower growth would be negative for the pound, especially in terms of investor sentiment. We expect this to play out this week, barring any substantial softening in the broad dollar, as the UK data calendar is completely sparse until Friday’s release of preliminary Q2 GDP. As things stand, the consensus for the growth data is a -0.2% QoQ contraction.

EUR

After falling 0.6% on Friday, the single currency is back trading at the midpoint of its recent range at the start of this week. Amid a notably light economic calendar, we don’t expect this range to be breached this week, unless a hotter US inflation report combines with a material deterioration in Europe’s energy situation.

USD

Dollar volatility remained persistent over the course of the past week. On Friday specifically, a two-fold beat in July’s Nonfarms net employment fanned the embers further, leading FX traders to erase all of the dollar’s losses on the week and leave the DXY index 0.7% higher. While seasonal factors were generous in this report, the net employment figure alone was enough to confirm the market’s prior concerns that the Fed isn’t yet done with 75bp hikes. Shortly after the release of the data, money market pricing shifted in favour of a 75bp hike at September’s meeting, while the Treasury curve rose across all tenors. This week, volatility is likely to be more subdued, barring another flare up in geopolitical tensions, as the data calendar thins out considerably. The only notable data release from the US side is Wednesday’s July CPI report, which comes hot on the heels of Friday’s payrolls report. While headline inflation will come down due to the moderation in fuel inflation recently, the level of persistence in the core measure will likely dictate the market reaction.

CAD

Despite a second consecutive negative net employment figure out of Canada on Friday, the loonie was the best performing G10 currency as the stronger US payrolls report helped to negate recession concerns in North America. This morning, the loonie is recoupling with higher beta currencies, of which are rallying in response to stronger Chinese trade data and the impact that is having on global commodity benchmarks. With WTI back above $90 and equity futures trading in the green, the loonie is trading 0.3% higher this morning as it looks to retrace last week’s near percentage point loss.

 

 

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