SMATS FX is proud to provide our weekly analysis of currency markets and exchange rates.
USD
- The US Inflation rate came in at 5.4% in September, making a new 13-year high after the 5.3% reading in August. Major contributors to price rises can be seen in food, shelter, and energy prices. Federal Reserve policymakers have also agreed that the tapering of emergency pandemic support should start in November or December, as stated in the minutes from the latest FOMC meeting.
- The Dollar Index (DXY) fell by 0.46%, from 94.52 to a low of 94.00, on the day of the Inflation Rate data release. The EUR/USD pair moved 0.29% higher during last week’s trade, closing at 1.160. Additionally, GBP/USD made a coinciding move to the upside, appreciating by 1.01% and closing the week just below the 1.3750 resistance level.
- The posting of another round of high inflation numbers has re-sparked concerns over the persistence in the recent upward price pressure, that we have seen during the economic recovery over the last year. Markets are starting to weigh in the realistic possibility of a sustained high-inflation environment, as opposed to the transitionary conditions portrayed by many of the world’s most powerful central banks. Investor skepticism can be seen in the bond market, with bond yields on 10-year US Government Bonds rising by roughly 10% over the past month, from 1.45% to 1.60%.
- This week is rather light on the data front, coming out of the United States. Nevertheless, US Building Permits & House Starts for September will be released. Building Permits are forecasted to shrink by 1.8%, after the previous months 5.6% growth. Similarly, Housings Starts are expected at recline by 0.9%, after Augusts 3.9% expansion.
GBP
- The number of employed people in the United Kingdom increased by 235,000, to 32.42 million, during the May-July period. While this figure marginally undercut analyst forecasts, the rise in job numbers highlights the continued re-stabilization in the U.K labor market.
- The Unemployment Rate moved 0.1% lower in August, in line with market expectations, coming in at 4.5%. Furthermore, the Claimant Coung Change was reported at -51 100 for September, slightly exceeding the anticipated decline, after claims for unemployment benefits fell by 58 600 in August.
- The Balance of Trade report was also released last week for the month of August. The U.K’s trade deficit widened further to £3.7 billion, from a reading of £2.9 billion in July.
- The United Kingdom’s September Inflation Rate will be released this week. Year-on-year inflation figures are expected to hold steady at 3.2%, while month-on-month numbers are predicted to rise by another 0.4%, adding to the 0.7% uptick in August.
- Furthermore, September Retail Sales Growth figure will come due, and are expected to rise by 1.5% after the 0.9% decline in the previous month. GFK Consumer Confidence will also be released, for the month of October, after the previous reading came in at -13.
EUR
- This past week we saw a significant decrease in the strength of the EUR. The common currency opened strong on Monday, reflecting some stability after the volatile previous week. By Tuesday we saw it fall against most majors including the GBP, closing at EUR/GBP 0.842 on Friday (almost a 0.7% drop since Monday).
- It appears that a shift in sentiment on the EUR has occurred. This comes as rhetoric from the ECB is pointing towards more permanent inflation prospects. ECB policymakers have warned investors about the potential inflation risk which may persists in the medium term (thereby partially doing away with their “inflation is temporary” stance).
- Data out during this past week has also pointed towards a stalling economy as supply chain issues persist and an energy crisis placing upward pressure on inflation.
AUS
- The Unemployment Rate increased to 4.6% in September, up from 4.5% in the month prior. Results indicate that job numbers declined by 138 000, adding to the 146 300 decline seen in August. However, this decrease can be largely attributed to a drop-off in part-time employment, which decline by 164 700. On the other hand, full-time employment increased by 26 700 openings.
- The NAB Business Confidence Index skyrocketed in September, rising from -2 in August up to a reading of 13. This increase comes after the continued vaccination efforts and easing lockdown restrictions in the region, thus boosting economic optimism. However, the Westpac Consumer Confidence Index declined by 2% in October, from 106.2 to 104.6.
- This week is rather light on the front, coming out of Australia. Flash Manufacturing PMI for October will come due, after last months recorded reading of 56.8. Flash Services PMI (October) is also scheduled for release, after Septembers 45.5 figure.
NZD
- Over the past week, the Kiwi strengthened against all of its main trading partners, strengthening about 1% against the pound and about 2% against the greenback.
- The inflation rate pertaining to the third quarter of 2021 increased by 2.2% on quarter which is the largest increase since 2010 and well above the 1.2% forecast.
- There is not much data to look forward to in the coming week but the kiwi will look to continue its rally against a weaker USD.
ZAR
- The South African Rand moved in accordance with recent inflation data and developed-market currency weakness. Both USD/ZAR and EUR/ZAR made drastic moves to the downside, in accordance with their safe-haven status, depreciating by 2.40% and 2.14%, respectively.
- The dollar closed off the week at R14.60 against the Rand, from an open of R14.96 on Monday. The euro’s similar price trajectory saw EUR/ZAR fall from R17.30 to R16.92, during the week’s trade.
- The pound managed to endure the recent inflation headwinds relatively well, compared to its safe-haven counterparts. Sterling held up better against the wave of emerging market strength, nevertheless shedding 1.40% in value against the Rand. After kicking off the week at R20.36, the GB/ZAR closed off on Friday around the R20.06 mark.
- Last week, we had the released of Retail Sales data for August. Retail Sales experience 4.9% month-on-month growth, after the previous months 11.1% contraction. However, despite the monthly uptick in retail activity, year-on-year figures indicate a 1.3% decline in retail sales. Mining, Gold & Manufacturing Production figures were also released, yielding mixed results reported for the month of August.
- This week, South Africa’s Inflation Rate reading for September will be released. Forecasts indicate that analysts expect inflation to rise up to 5% (YoY), after an increase from 4.6% to 4.9% was recorded in August.
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