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.