SW Weekly Market Update 2 2

Weekly market update 24 September – Dollar steadied after FOMC statement was released, Euro and Sterling suffered against the greenback

Weekly market update 24th September – Dollar steadied after FOMC statement was released, Euro and Sterling suffered against the greenback

1. The U.S. dollar edged up to 93.5 as investors digested the latest FOMC statement and prospects for slower growth. Reflecting growing optimism for the economic recovery, the Fed is preparing to end its economic stimulus later in November if the economy progresses as expected, while also moving up expectations for a rate hike in 2022, ahead of its previous 2023 prediction. Elsewhere, investors continue to monitor the development of Evergrande’s debt crisis which roiled global markets. Currently, the giant real estate developer remains mum on the $83 million of interest due this coming Thursday for a dollar-denominated bond that’s set to mature in March 2022. On the data front, Initial Jobless Claims rose for a second week, suggesting that the labor market continues to struggle to fully recover from the pandemic hit. Meanwhile, IHS Markit Services PMI for the US fell to 54.4 in September of 2021 from 55.1 in August while new home sales remain well below 977K in August of 2020 as high prices due to rising material costs continue to weigh on buyer’s affordability. Looking ahead, the final estimate of second-quarter GDP should reflect the economic recovery during the April-June period while the ISM manufacturing data should point to a slower although a still strong rise in factory activity.

2. The Euro suffered this week, falling to below $1.17 against the greenback after the Fed signaled a possible move to raise interest rates sooner than expected. On the data front, the Eurozone showed declines in both services and manufacturing PMI data, but Eurozone consumer confidence unexpectedly rose 1.3 points in September, amid optimism around vaccination and a brighter economic outlook. For the week ahead, investors would be looking at preliminary CPI data from the Euro area to have a gauge on inflation. Traders will also pay attention to the outcome of the German federal election. Elsewhere, Sterling surged in the middle of the week to above $1.37 against the greenback before paring recent gains at the end of the week. This comes after the Bank of England (BOE) left interest rates and asset purchases unchanged, which aligned with general consensus. However, the BOE noted that there is now a stronger case for modest tightening on its monetary policy. Going forward, investors could look to GDP data released next week to get a better idea of how the British economy is faring.

3. The Aussie extended its decline against the greenback nearing the end of September, as growing concerns over the Australian economy’s recovery continue to weigh on the currency. Also, iron ore, which is Australia’s largest export, saw its price dipped this week as well. The New Zealand dollar also edged lower to $0.70 from last week, the weakest level it has been since the end of August. Going forward, given the improving GDP numbers and declining COVID-19 infection numbers, the Reserve Bank of New Zealand (RBNZ) could look to tighten its monetary policy to rein in inflation. Elsewhere, gold prices held steady at $1,750 per troy ounce before the week ended on Friday, after several major central banks sent hawkish signals to the public. Crude oil saw some slight improvement, rising to about $73.98 per barrel, as a result of falling U.S. inventories and growing demand for fuel.

Salzworth Asset Management