Weekly Market Update 20 August – Dollar strengthened after the release of FOMC meeting minutes, RBNZ maintained its hawkish stance despite keeping rates unchanged
Weekly Market Update 20 August – Dollar strengthened after the release of FOMC meeting minutes, RBNZ maintained its hawkish stance despite keeping rates unchanged
1. The US Dollar strengthened against all its G7 peers this week, after the FOMC meeting minutes revealed that Fed officials could start slowing the pace of bond purchases should the economy recover as expected. Hints of a possible hawkish move by the Fed sent investors scrambling to the safe-haven U.S. dollar over the week. Additionally, U.S. jobless claims fell for a fourth straight week to a pandemic low, fuelling expectations that the Fed should provide a schedule for tapering soon. For the upcoming week, investors will be looking out for the Fed’s tone during the Jackson Hole Symposium. A slightly hawkish tone to reaffirm the Fed’s tilt towards early tapering could result in the U.S. dollar gaining more strength as the reserve currency of the world and traditionally a safe-haven currency.
2. The Euro and Sterling underperformed against the strong U.S. dollar for the week, with the Euro trading at a new 2021 low and the Sterling trading at a new low for the month of August. The ECB continues to remain dovish going forward, with policymakers pledging to keep interest rates at record low levels in order to bring inflation back to it’s 2% target, while ECB President Christine Lagarde warns of the impact of a fresh wave of the coronavirus pandemic on the economic recovery. Looking ahead, investors will be keeping a close watch on the release of the ECB meeting minutes this week for further affirmation of their dovish stance. Meanwhile, the Bank of England left monetary policy unchanged at its August meeting, but signalled “some modest tightening” over its forecast period if the economy continues to improve. The slight hawkish turn of the Bank of England managed to curb losses for the Sterling, from the concerns over the pace of economic recovery.
3. The RBNZ held its official cash rate at a record low of 0.25% after its August meeting, defying expectations of raising interest rates by 25 basis points. This decision came about after the New Zealand government ordered a nationwide lockdown on August 17th over one Covid case, with an extension to the lockdown period as the outbreak widened, putting downward pressure on the Kiwi. Despite that, RBNZ maintained their hawkish stance by saying that they are still expecting a rate hike before year-end, being the first G10 central bank to raise interest rates since the onset of the pandemic. Elsewhere, Crude oil continues to suffer losses as global economic recovery diminishes with the ongoing spread of the Delta strain coronavirus. Meanwhile, Gold, a dollar-denominated asset continues to be pinned down by a stronger U.S. Dollar.
