THE WEEKLY MARKET REPORT

The USD ended the week with modest gains, which were more of a consequence of a weaker EUR, GBP and the JPY than the general strength of the greenback. The USD data was certainly seen as somewhat dollar-supportive with the Consumer Price Index (CPI) beating expectations, reporting a 3.7% year-on-year price rise. Friday’s retail sales numbers also beat expectations, showing a 0.6% rise against the expected 0.1% rise. A deeper look into these numbers was not so positive, with  the last two months of data revised sharply downward. The rate hike expectations barely shifted  on the data releases with the probability of a rate hike this week unchanged at only 1%.

The Australian dollar was boosted by the upbeat employment data, the more positive news coming out of China and the general risk-on tone that dominated what prevailed in the currency markets. The Loonie was also seen as a relatively strong currency, supported by the continuation of strong oil prices which have now gained almost 25% since early July.
The ECB raised their interest rates by a further 25 basis points last week, its 10th successive rise. The markets were split down the middle as to which way the central bank would go, but proved rather unimpressed by the declared rise. President Lagarde, whilst not closing the door of further hikes, was pretty clear that she thought enough has been done for now. The Euro declined against its G8 peers and ended the week as one of the weakest currencies. All eyes will be on the Fed this week to see if the Euro will find immediate support or not.

The GBP was also a currency under pressure. Soft GDP numbers and general risk in them saw the pound drop to its lowest level in 3 months on the basket of currencies. The Bank of England will decide this week on the latest move in interest rates which could provide some much-needed support. There are some on the MPC panel that will call for a 50 basis point rise, and the doves will still be there calling for a pause. Either way, we can expect increased volatility in sterling this week.The Japanese Yen continued its decline after the supporting rhetoric from Governor Ueda the week prior. Markets re-looked at his earlier comments regarding the possibility of lifting the yield curve control and decided that there was nothing there to support the view that a change of course was imminent. The 148 resistance zone is holding for now and will surely be breached if the BOJ does not make a change this week.
Global stock markets were in “Risk On” with the FTSE, DAX and CAC  all ending the week at monthly highs.

This week will be dominated by the three main Central Bank rate decisions from the US the UK and Japan.

On Wednesday the FOMC is expected to announce a pause in it’s hiking cycle leaving rates at 5.5%. The CME’s Fed Watch tool is pricing in a 99% probability of a pause. However, the follow-on statement by Powel will be the main focus. Currently, the same tool is pricing in only a 42% probability of a further hike by the year-end. The US is remaining resilient. The dollar short traders are becoming stretched. If Powel comments on rates staying higher for longer or hints at further hikes to come we would expect the US to continue with its upward momentum.

The Bank of England announces its interest rate decision on Thursday. 9-panel members make the vote. Analysts are expecting an 8 to 1 split in favor of a 25 basis point rise however there is a possibility that one of the more hawkish members could vote for a 50  bp rise. Which ever way the voting goes a hike is all but priced into the market. Attention will again be on the forward guidance of what we can expect further down the line. Governor Baily has been quite vocal on his belief that inflation will be dropping rapidly by the year's end. A dovish hike appears the more likely move with sterling coming under pressure in the run-up and following on from the announcement.
The Swiss national bank also made its rate decision on Thursday with a 25 basis point rise baked in.

Perhaps the most impactful Central Bank decision this week will be made by the Bank of Japan. Governor Ueda has recently been on the wires hinting about the possibility of a policy approach shift. This initially led to support of the JPY however last week saw the Yen depreciate as it was less clear as to the timing of the policy shift. This week will be very important for the JPY. If Ueda does not give any clear clues on the the timing of policy shift the USDJPy will surge higher challenging the all-important 150 zone. Our view remains that some hawkish guidance will be given which in turn will support the Yen with a possible move back to 145.