Samples 8

Weekly Market Update 10th July – Dollar extended its rally on solid jobs report, US CPI data in focus this week

Weekly Market Update 10th July – Dollar extended its rally on solid jobs report, US CPI data in focus this week

1. Dollar extended its rally, fueled by robust US jobs reports which eased slowdown fears and bolstered Fed’s aggressive stance in tightening its monetary policy to curb rising inflation. The US unemployment rate was in line with market expectations at 3.6 percent in June of 2022, the lowest reading since February 2020. The US economy added 372K payrolls in June of 2022, ahead of market forecasts of 268K, signalling a resilient labour market amid rising interest rates. Demand for the safe-haven currency was further boosted with hawkish comments by Raphael Bostic who indicated support for another rate hike of 75 basis points this month. He is the president of the Atlanta Fed Bank, who had previously been one of the central bank’s most dovish policymakers. In the coming week, investors will turn their attention to US inflation data where a high reading would further cement expectations for more aggressive Fed’s moves going forward which could drive the Dollar higher. Other notable publications include US Retail Sales, PPI and consumer sentiment data.

2. Euro and Pound dipped lower against the greenback, as both countries continue to battle with rising inflation and slower growth. On the data front, Germany’s industrial production dipped 1.5% yoy as supply chain constraints and rising commodity prices continue to weigh on production. Europe’s energy crisis and stagflation risks could also leave the ECB in a bind as they seek to rein in inflation The Euro could face strong headwinds on concerns that the elevated energy prices, exacerbated by the annual maintenance of the Nord Stream key pipeline, the biggest single pipeline carrying Russian gas to Germany could drive the region into a deep recession. Meanwhile, political turmoil in the UK, with the resignation of Prime Minister Boris Johnson and several cabinet members also weighed on Sterling. With inflation showing no signs of peaking despite the BoE’s 115 percentage points hike, we could see the Pound extend its decline as poor consumer sentiment and rising prices continue to squeeze living standards. In the coming week, key headline data in the Eurozone includes the Industrial Production, CPI and Economic sentiment data as well as Retail sales and GDP data in the UK.

3. Commodity currencies edged lower against the greenback, weighed down by recession fears and China’s new virus lockdown restrictions which dominated market sentiment. In Australia, the RBA hiked interest rates by 50 basis points, as many had anticipated, and declined to provide the more hawkish forward guidance that some had hoped for, which caused the Australian dollar to dip below 0.680. A weaker global market sentiment also weighed on the Kiwi Dollar which closed below $0.62 on Friday. A report also showed that 63% of New Zealand firms anticipate worsening economic conditions over the next year, as supply disruptions and rising cost pressures continue to dominate which could hamper growth and challenge the RBNZ’s hawkish stance. In the coming week, notable publications include the BOC’s and RBNZ’s interest rates decisions where we could see 50 basis point hikes by both central banks.

4. Oil prices extended their decline to below $103 a barrel as recession concerns and new coronavirus-induced lockdowns in China, one of the worlds’ largest consumers of oil sapped global demand. Growing viral infections across China and the identification of a novel Omicron subvariant in Shanghai stoked concerns about the possibility of wider lockdowns across the nation. Meanwhile, supply-side constraints continue to limit the downside risks as the market is still concerned about Western nations’ proposals to cap the price of Russian oil, and President Vladimir Putin has warned that more sanctions might have “catastrophic” effects on the world energy market. Elsewhere, Gold prices suffered against a stronger greenback while prospects of higher interest rates dampened the appeal of the non-yielding asset.

Salzworth Asset Management