Weekly Market Update 26th August – Dollar fluctuated following the Jackson Hole Symposium as Fed reaffirmed its hawkish stance
Weekly Market Update 26th August – Dollar fluctuated following the Jackson Hole Symposium as Fed reaffirmed its hawkish stance
1. The Dollar index fluctuated above 108 this week while approaching the 20 year high level, and ended off below 109 on Friday, supported by expectations of higher interest rates by the Fed. Hawkish Fed have suggested interest rates to be raised to 3.75% to 4% by the end of the year and Fed Chair Jerome Powell noted that they are still determined to bring down inflation rates to 2% during his speech at the Jackson Hole Symposium. Borrowing rates may stay elevated for a period of time, with the likelihood of adverse impacts on growth. Both Flash Services and Manufacturing PMI came in lower than expected, with the Services PMI at 44.1, lower than the expected 49.8. On the other hand, things were positive for the GDP and unemployment data. GDP data stood at -0.6% instead of expectation of -0.7%, and unemployment claims data was lower than expected at 243k. Additionally, the Core PCE Price Index, Fed’s preferred measure of inflation stood at 0.1%, the lowest in months and suggested possibilities of inflation slowing. In the coming week, investors will be looking at the series of unemployment data like Non-Farm employment and jobs opening for more insights on the health of the labour market while in anticipation for further interest rate hikes.
2. Euro hovered at its 20 year low of below $1, weighed down by the stronger Dollar. German consumer sentiments fell, ending up at -36.5 for the month of August, hitting its third consecutive low. This was contrasted by upbeat data of better than expected German GDP and ifo business climate numbers. Notable publications next week include CPI estimates, trade balance and unemployment data. Elsewhere, the British Pound weakened below $1.18 level, its lowest since March 2020 as recessionary fears continue to weigh down the British economy. Overall, manufacturing suffered during this period with its PMI at 46.0, the lowest since 2020, compared to the expected 51.0 while the Services PMI performed slightly better than expected, at 52.5. Meanwhile, markets are anticipating a 50bps rate hike by the BoE in its September meeting to curb inflation standing at a four-decade high of 10.1% in July.
3. Commodity currencies fluctuate heavily with the Dollar’s volatility this week, with the Australian Dollar at the $0.69 range against the greenback. Heavily weighed down by the Dollar, market sentiments for the Aussie remain weak, while data on retail sales and commodity prices in the coming week will better shape the market’s outlook. The Chinese Yuan extended its decline against the US Dollar to reach 0.1455, hitting its lowest since August 2020 with its announcement of a 1 trillion yuan stimulus package to support the economy. However, these measures for infrastructural repair are unlikely to support the damage caused by Covid-19 to lift its growth rate. The New Zealand Dollar fell to almost $0.61 in the week, with the cautious tones displayed during the RBNZ Governor Adrian Orr’s speech noting that “central banks may have to push towards zero growth”.
4. Brent Crude oil prices recovered to above $100 per barrel within the week due to uncertain supply levels coupled with weakening global demand. Recessionary concerns in the United States as well as poor outlook for China dimmed the oil demand outlook, with the 2 countries accounting for 34% of the global oil demand. Elsewhere, gold prices ended the week at $1735 after rising to $1765 during the week, as it continues to serve as a traditional hedge against rising inflation.
