Matthew Ryan

Matthew Ryan

Analyst at Ebury – a leading global fintech company specialized in international payments, collections, and foreign exchange services for SMEs and midcaps. Ebury offers foreign exchange activity in over 130 currencies as well as cash management strategies, trade finance, and FX risk management. Authorised and regulated as an electronic money institution.

Regulary ranked among the top forecasters in Bloomberg's FX forecast accuracy rankings. Ebury analysts also provide financial market reports in Polish, available on FXMAG.PL

USD/JPY Weekly Review: Strong Dollar and Yen's Resilience in G10 Currencies

US CPI Report Sparks Speculation on Fed's Monetary Policy Path

Matthew Ryan Matthew Ryan 13.07.2023 12:18
The recent US Consumer Price Index (CPI) reading has ignited discussions and speculation regarding the future monetary policy of the Federal Reserve. Traders and investors have closely scrutinized the implications of this report, seeking insights into the direction of interest rates and the overall stance of the central bank. To gain further perspective on the matter, we reached out to Matthew Ryan, CFA, an expert in the field, for his analysis. Ryan emphasizes that the US dollar experienced a widespread sell-off in response to the soft US inflation report. The June data revealed a significant easing of headline inflation, reaching its lowest level in over two years. Equally notable was the unexpected drop in the critical core index, falling below 5% for the first time since November 2021, marking a significant turning point.     The dollar selling off across the board after soft US inflation report intensified bets that the Federal Reserve's rate hike cycle may soon be nearing an end. Headline inflation eased sharply in June, falling to its lowest level in more than two years, while the critical core index also unexpectedly dropped below 5% for the first time since November 2021 - somewhat of a watershed moment.   The retreat in the sticky core inflation measure will be particularly welcome news for the Fed, as it suggests that the bank's ultra-aggressive tightening cycle is finally bearing fruit. There remains a long way to go before underlying price pressures return to target, though the notion that almost all metrics of US inflation are trending in the right direction will be highly comforting for officials.     Recent hawkish communications from FOMC officials, including chair Powell, suggest that another 25 basis point rate hike remains highly likely later this month. We are, however, of the opinion that additional hikes beyond then are far from guaranteed, and are increasingly confident in our call that the July hike will be the last in the current cycle, before rate cuts commence at some point in H1 2024. We think that this dovish pivot should open the door to additional downside in the US dollar in the coming months.    - Matthew Ryan, CFA    
Czech National Bank Prepares for Possible Rate Cut in November

2023 FX Market Preview: Every Country And Economic Area In The G10 Will Continue To Experience An Inflation Overshoot Through The End Of 2023

Matthew Ryan Matthew Ryan 28.01.2023 09:48
But what can we expect in the FX market in the next twelve months? Below, we outline our main calls for the coming year, providing an overview of the factors that we believe could have the most significant impact on currencies in 2023. Inflation rates to ease from highs - for now We have finally begun to see signs of an easing in price pressures in the past few months, suggesting that we may have seen the peak in inflation, at least in the short- and medium-term. Recent inflation prints have started to come in below both economists’ expectations, as represented by a sharp drop in Citigroups’s Inflation Surprise indices, and their respective peaks. This has been particularly evident in the US, where the CPI reports for both October and November came in well below projections. Much of these softer inflation prints can be attributed to the recent drop in energy prices. Core inflation rates, which strip out volatile components such as food and energy, remain elevated and have not yet shown any real signs of trending downwards in most cases. This will be key for central bank policy in 2023. Figure 1: Citigroup Inflation Surprise Indices (2012 - 2022) Source: Refinitiv Datastream Date: 04/01/2023 If peaks in inflation rates haven’t already materialised, we believe that these will emerge in early-2023, in large part due to the below: Energy prices have fallen sharply, particularly natural gas. Since peaking in late-August EU natural gas prices have dropped by approximately 75%, while in the US prices have declined by around 50%. A complete cutoff in Russian energy supply to Europe remains a risk factor. Energy shortages and rationing, however, appear highly unlikely this winter in light of high gas storage (still above 80% in EU at the time of writing), an oversupply of liquefied natural gas and rather mild winter weather in Europe thus far. Supply chains are improving. The main driver of the initial spike in prices in 2021 was the mismatch between the supply of goods and booming demand following the lifting of pandemic restrictions. These supply constraints have eased in recent months, and we believe will continue to do so in 2023. This is represented by a sharp drop in freight rates, which represent the cost of transporting goods from one place to another, an increase in port volumes and shorter shipping times. Economic activity globally is softening, in part due to tighter monetary policy. While economic slowdowns and recessions are an unfortunate byproduct of higher interest rates, they may be a prerequisite to bring down rates of inflation in a sustainable manner. The IMF expects global growth to slow to 2.7% this year, from 3.2% in 2022, with growth in advanced economies projected to drop to a mere 1.1%, less than half the expected pace for 2022 (2.4%). Inflation expectations have eased. For the most part, both the market’s and consumers' expectations for future inflation rates have either eased or stabilised in recent months. In the US, the two-, five- and ten-year breakeven inflation rates have all fallen to the 2.25-2.30% range, just above the Fed’s 2% target, from 4.9%, 3.6% and 2.9% respectively in March. Read next: Intentional Depreciation Of The Currency - Devaluation| FXMAG.COM We believe that a normalisation in inflationary pressures will likely be a gradual process, and the return to central bank targets remains some way off. According to the IMF’s most recent projections, every country and economic area in the G10, with the exception of Japan (-0.6%), will continue to experience an inflation overshoot through the end of 2023. In some instances, most notably the UK (+7.0%) and Sweden (+6.4%), this gap is expected to remain significant, though we believe that these estimates may soon be revised downwards. We suspect that China's reopening will be an important factor for inflation rates this year, as an increase in activity in the world's second-largest economy would likely present an upside risk to prices.   Written by: Enrique Diaz-Alvarez, Matthew Ryan (CFA), Roman Ziruk, Itsaso Apezteguia, Eduardo Moutinho, Michal Jozwiak – Ebury’s Market Analysts Source: 2023 FX Market Preview: Is a global recession on the way? (ebury.com)
Technical Outlook Of The Main EUR/USD Currency Pair

Ebury's Matthew Ryan talks Forex market - Euro, British pound and more - 16/01/23

Matthew Ryan Matthew Ryan 16.01.2023 21:43
The US inflation report confirmed the downward trend in price pressures and sent financial markets worldwide soaring on the hope that Fed hikes will soon stop. 2023 has gotten off to a very optimistic start, as the good news on inflation are added to fading fears of an European recession and the Chinese post-COVID reopening. Stocks worldwide soared, bonds rallied and the dollar suffered as traders sold-off safe-havens, ending the week down against every major currency except the Swiss franc. The 2023 party in emerging market currencies rolled on, fuelled by rising commodity prices and increased risk appetite.   This week is relatively light in data. A critical Bank of Japan meeting looms on Wednesday, given hints that the Bank of Japan is ready to ditch its position as a dovish outlier among the major central banks. The key question will be whether the trends in place so far for 2023, i.e. rallying risk assets, diminishing worries about the inflation outlook and a falling dollar, stay in place as markets digest the positive inflation news from last week. Traders’ attention will be focused on the numerous speeches by the world’s central bankers at the Davos economic forum later in the week. We expect diverging content and tone from ECB and Fed speakers, given the developing gap between the trends in core inflation in the Eurozone (still rising) and the US (slowly falling). Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 16/01/2023 GBP The UK economy continues to outperform gloomy expectations. It managed to eke out 0.1% growth in the month of November, defying expectations for a mild contraction and casting doubt on calls that the UK is already in recession. Sterling did not react much to the news, and it largely tracked the euro in its rally against the dollar. Figure 2: UK GDP [% MoM] (2021 – 2022) Source: Refinitiv Datastream Date: 16/01/2023 The UK will provide a couple of the few major data points in the coming week, with the publication of the latest labour report on Tuesday, and the December inflation data on Wednesday. We will be paying particularly close attention to the core index. So far, as is the case in Europe, we have not seen this key indicator exhibit the kind of welcome downward trend we are witnessing in the US. EUR The main news of the week out of the Eurozone was the large upward surprise in industrial production for November. While the number is old by now, it makes it quite unlikely that the Eurozone entered recession in the winter of 2022, in line with our views and contrary to the gloomy sentiment. The continued fall in energy prices is further buoying sentiment on the Eurozone economy, and the common currency outperformed every G10 currency last week, save the yen. We will pay close attention to ECB President Lagarde’s speech at the Davos forum in the coming days. The need for Eurozone rates to catch up with those in the US, and the further upside to the bloc’s economy from China’s reopening, remain the pillars of the bullish case for the euro. USD Last week’s US inflation report came in almost exactly as expected, and that was good news for markets. The monthly headline number fell for the first time since May 2020, while the key core inflation index, more persistent and a better predictor of future inflation than the headline, rose by only 0.3%. The latter has been on a clear, albeit gentle, downward path since last summer, though it is still at levels far above the Fed targets. It now seems likely that overnight rates in the US will not rise above 5% before the Fed adopts a wait and see attitude, with financial markets eyeing two additional 25bp hikes in February and March before the FOMC ends its tightening cycle. That said, we still think that the prospect of rate cuts lies far into the future, certainly not before 2024. Figure 3: US Inflation Rate (2012 – 2022) Source: Refinitiv Datastream Date: 16/01/2023 JPY The yen was by far the best performer in the G10 last week, extending its recent rally and advancing to its strongest position on the US dollar since May. Investors are continuing to favour the yen in light of the hawkish policy shift from the Bank of Japan, which tweaked its yield curve control strategy in December. Speculation is rife that the BoJ could further adjust its YCC policy at its meeting this coming Wednesday. With indicators of both consumer and producer inflation on the rise, we think there is a possibility that it could scap it altogether, which would be a significant bullish signal for the yen. While we don’t expect the BoJ to open the door to raising its base rate just yet, we still see further room to run in the currency from current levels, and go into Wednesday’s meetings seeing risks to the yen as skewed firmly to the upside. CHF Last week marked a milestone for the EUR/CHF pair, as it rallied back above the parity level for the first time since July. This can be attributed to an improvement in market optimism, with risk sentiment supported by a further easing in US inflation. Indeed, the Swiss franc was one of the worst performers in the G10 last week. The recent move in the pair is in line with our view and we expect a continued, albeit gradual, depreciation of the franc against the euro in the coming quarters. Similar to the previous one, this week’s domestic economic calendar is rather light. Instead, we’ll be focusing on central bank communications, notably from Swiss National Bank governor Jordan, who will be speaking at the Davos conference on Friday. AUD Once again, the Australian dollar was one of the outperformers last week, with the currency continuing to take advantage of China’s reopening – a key stimulus to the Australian economy. Macroeconomic news out last week was also rather encouraging, raising the possibility of additional tightening from the Reserve Bank of Australia, potentially at its next meeting in early-February. November retail sales beat expectations, the trade balance swelled greater into surplus, while inflation data continued to trend higher, with the monthly print rising to 7.3% in November. Figure 4: Australia Trade Balance (2015 – 2022) Source: Refinitiv Datastream Date: 16/01/2023 As things stand, markets are torn as to whether the RBA will stand pat or deliver another 25bp hike next month. Upcoming data will be critical in guiding these expectations, starting with Thursday’s labour report for December. An easing in the pace of net job creation is expected, though this number has tended to surprise to the upside in the past few months. NZD The New Zealand dollar extended its recent underperformance against its Australian counterpart last week, perhaps partly a consequence of a previous strong rally and the lack of any major domestic developments. The Reserve Bank of New Zealand is expected to be one of, the not the most, active central bank in the G10 this year, but this already appears largely priced into NZD, which is limiting further upside in the currency. Activity should pick up modestly this week, with business confidence (Monday) and PMI data (Thursday) to be closely watched by market participants. We think that the latter may be particularly important – this key indicator has been on a downward trend for the past few months and a drop below 50 in the composite index isn’t out of the question. CAD CAD was one of the underperformers last week, which can perhaps be linked to the currency’s close tie with the US dollar more than anything else. This week looks set to be a far more eventful one. The December inflation report (Tuesday) could be a highly important one for the Canadian dollar. So far, we’ve seen signs of a very gradual downward trend in the headline inflation number, but economists are pencilling in a sharp drop to 6.3%, which would be the lowest level since February. Of greater importance for CAD will be the core inflation print. The lack of any clear signs that this has peaked could ramp up expectations for another 25bp rate hike from the Bank of Canada at its policy meeting next week (currently 70% priced in). Retail sales on Friday could also be a market mover, although this data is for November so will likely have a limited impact on the USD/CAD exchange rate. SEK Inflation data released in Sweden last week confirmed our view that the Riksbank still has some way to go in its fight against inflation. Even off the back of the data, and the general improvement in risk sentiment, the krona failed to benefit and ended the week lower against a broadly stronger euro. In contrast to other major economic areas, particularly the US, price pressure continues to rise in Sweden. Sweden’s inflation rate increased more than expected to 12.3% in December, its highest rate since 1991. The CPIF, the measure of inflation tracked by the Riksbank, also increased to 10.2%, reaching double digits for the first time in more than thirty years. In our view, an additional 50 basis point rate hike by the Riksbank is warranted in February. This could provide some support for the krona, particularly as most other central banks are slowing their tightening cycles. NOK In line with its Swedish counterpart, the Norwegian krone ended the week lower against the euro, with the EUR/NOK pair trading around the 10.7 level. We attribute this modest underperformance to the downward surprise in the Norwegian inflation data for December, released last week. Norway’s inflation rate decreased more than expected to 5.9% in December, its lowest level in seven months. However, the core inflation rate, more important for future monetary policy in our view given it strips out volatile components, increased slightly to 5.8%. Norges Bank will meet this coming Thursday, and looks likely to again raise rates by another 25 basis points, in its attempt to curb inflation. Markets are pricing a total of only 25bps of hikes for the next two meetings though, in our view, another 25bps rate hike in March cannot be ruled out, given high inflation and the resilience of the domestic economy. CNY The Chinese yuan continued rallying last week, rising to its strongest position against the US dollar since July this morning. The move in USD/CNY does, however, appear to be largely a consequence of the weaker US dollar, as the CFETS RMB index ended last week only a tad higher. Last week’s inflation data from China did not rock the boat. As expected, the headline rate ticked up slightly in December, although at 1.8% it remains far below the 3% target and is not expected to reach this level anytime soon. The inflation numbers, including PPI printing in negative territory, continue to point to weak demand. This week’s economic calendar is packed with data. Tuesday is set to be especially busy as we’ll receive key hard data prints for December and the GDP data for the fourth quarter. Moreover, loan prime rates are set to be announced on Friday. The PBoC kept the rate on its one-year medium-term lending facility (MLF) unchanged today. It also injected 79 billion yuan in fresh loans on top of the 700 billion yuan rollover. The base case is for no change in the loan prime rates (LPRs), albeit a change in the 5-year rate, which serves as a reference for mortgage rates, would not be a major surprise. Economic Calendar (16/01/2023 – 20/01/2023) Source: Dollar retreat continues amid inflation optimism | Ebury UK
Bank of England raised the interest rate for the 12th meeting in a row

Euro could perform better-than-expected thanks to less severe energy crisis

Matthew Ryan Matthew Ryan 09.01.2023 20:59
Last week brought some relief on the inflation front on both sides of the Atlantic. In Europe, energy prices fell more than expected in December. In the US, wage increases appeared to moderate. In response, interest rates fell, and risk assets started the year on the right foot, rallying across the board. G10 currencies were mixed, but emerging market ones took their cue from investor’s optimism and rallied hard, led by Asian and Latin American ones. The Thai baht topped the charts last week, as its tourism sector is expected to be a strong beneficiary of the end of zero-COVID policies in China.   Attention this week turns to the all important CPI inflation report in the US, out on Thursday. Market optimism that the peak of inflation is behind us leaves little room for error here. Strategists and economists are mostly revising upwards their forecasts for the euro on the back of a sense that the impact of the energy crisis will be less than expected and that any recession there will be short and shallow – which has been our view throughout. UK monthly GDP figures for November and a slate of major central bank speakers, led by Fed chair Powell on Tuesday, will round out the week’s events. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 09/01/2023 GBP Sterling had an unremarkable start of the year, but still managed to put in a decent performance near the top of the G10 performance rankings. The pound is now viewed as a risk asset and was buoyed modestly by strong markets. This week, the November GDP data stands out as we look for confirmation that the UK is in a mild recession. Consensus expectations are for a 0.3% shrinkage in economic output, but these economist forecasts have tended to be overly pessimistic in the past few months. Sentiment around the UK economy is quite bearish and a positive surprise here could lead to a significant sterling rally, in our view.   EUR Sentiment surrounding the Eurozone economy has improved remarkably over the past few weeks, on the back of a mild winter, lower energy prices and what looks to be a meaningful improvement in headline inflation. We caution against reading too much into last week’s inflation surprise. It was caused by direct state intervention on electricity prices, particularly in Germany and Spain, rather than a meaningful rebalancing between supply and demand. The more persistent core inflation number continues to increase and there is no sign that it has reached a peak yet. ECB officials seem to agree with us, and the tone of their communications is much more hawkish than is suggested by current market pricing of future rate increases. We maintain a positive view of the common currency based on our expectations of higher terminal rates from the ECB. Figure 2: Euro Area Inflation Rate (2013 – 2022) Source: Refinitiv Datastream Date: 09/01/2023 USD The US labour market report for December must have been pleasing to the Federal Reserve, as it was neither too hot nor too cold. Jobs continue to be created at a steady though moderating pace, and while unemployment remained near its lows, wage increases seemed to cool. Overall, the numbers are consistent with moderating inflation as well as a growing economy. In other words, a soft landing. The signs that inflation may have peaked for the short-term are more convincing in the US than in Europe, but the Fed shares the ECB’s healthy scepticism and commentary from FOMC officials remains hawkish. The dollar seems unsure of where to go, weighed down by optimism on inflation but supported by the tone of the Fed’s communications. The upcoming inflation report should provide some clarity. Figure 3: US Average Hourly Earnings [% MoM] (2021 – 2022) Source: Refinitiv Datastream Date: 09/01/2023 JPY The yen put in a middling performance during the first trading week of 2023. The Japanese currency was actually one of the better performers in the world in the final couple of weeks of last year, as the Bank of Japan delivered a dramatic U-turn on its monetary policy stance. The BoJ, which was undoubtedly the most dovish central bank in the G10 in 2022, unexpectedly lifted the upper limit of its cap on 10-year government bonds from 0.25% to 0.50% during its 20th December meeting, triggering the largest upward move in Japanese bonds since 2003. CHF The Swiss franc traded within a narrow range against the euro last week, ending it around the middle of the G10 currency performance dashboard. Mirroring the Eurozone, Swiss inflation fell in December, surprising to the downside. A decline to 2.8% from 3% is a welcome sign, but the inflation fight in Switzerland is not yet over. Core inflation remains uncomfortably high and, surprisingly, trended in the opposite direction to the headline number, increasing back to 2% from 1.9% in the previous month. Moreover, January may see an increase in the headline rate itself, as utility providers adjust prices. We are pencilling in another interest rate hike from the SNB in March, albeit the size of the move and possibility that this could be the end of the hike cycle are not yet set in stone. In this context, we’ll keep an eye on upcoming data from Switzerland, especially inflation prints for January and February. This week’s calendar, however, is largely empty, therefore, the attention should be on outside news. AUD The Australian dollar was the best performer in the G10 last week, largely a consequence of the growing optimism surrounding the Chinese economy. China effectively ended its zero-covid strategy in December, which has been a clear bullish signal for the economic areas heavily reliant on trade or tourism flows from Asia’s largest economy. After a two year ban, reports that China is considering resuming imports of Australian coal have also buyed AUD, which opened trading this morning above the $0.69 level and its strongest position since August. A number of data releases are on the docket in Australia this week, which may lead to a rather volatile few days for the dollar. We will be paying closest attention to the November inflation and retail sales data (both on Wednesday). Stronger prints here should support AUD, and would support our view of an outperformance in the Australian economy relative to expectations. Figure 4: Canada Net Employment Change (2022) NZD We witnessed another underperformance in NZD relative to its Australian counterpart last week, which has been a theme since mid-December. News of China’s reopening is a highly positive development for the New Zealand economy, which relies on the country for more than one-quarter of its overall export revenue, though the New Zealand dollar has struggled to post any meaningful gains since zero-covid was abandoned. While a previous outperformance may partly be to blame, we are somewhat surprised we’ve not seen a more significant rally. This week is light on data in New Zealand, with consumer confidence data on Tuesday the only real data release of any note. With that in mind, we suspect that NZD will be driven by events elsewhere. CAD Aside from the Japanese yen, CAD has been the best performing currency in the G10 in the past month. This may partly be due to valuation, as the Canadian currency underperformed most of its peers in the second half of last year. Global oil prices have also stabilised in the past few weeks, while economic data has held up reasonably well in Canada, opening the door to an additional rate hike from the Bank of Canada at either its January or March meetings. Last week’s strong labour report supported the view that further tightening may be on the way. A further 104k net jobs were added in December, well above the 8k expected, while the unemployment rate also dropped to 5% from 5.1%. This is a scorchingly hot report, and we now think that another hike at some point in Q1 is more likely than not. Figure 4: Canada Net Employment Change (2022) Source: Refinitiv Datastream Date: 09/01/2023 SEK In a shorter-than-usual trading week in Sweden, with no major economic data releases, the krona ended the week lower against the euro, with the EUR/SEK pair trading around the 11.2 level. Better-than-expected eurozone data pushed EUR/SEK to trade at its highest level since 2020 at the end of last week, although the krona has since recovered some of its losses. Inflation data for December will be released this Friday. The inflation rate is expected to fall back slightly from the previous month, but a higher than expected number could boost the krona, as it would support our argument that the Riksbank will likely need to keep raising interest rates in the coming meetings in order to bring down high inflation. NOK With no major economic news out in Norway last week, NOK was driven largely by events elsewhere. In line with the Swedish krona, the Norwegian krone ended the week lower against the euro, with the pair EUR/NOK trading around the 10.6 level. We were slightly surprised by the underperformance of NOK last week, which ended at the bottom of the G10 performance tracker. News of China’s reopening should be supporting global oil prices, and the krona, though this doesn’t yet appear to be fully reflected in the value of the commodity. Norwegian inflation data for December will be released on Tuesday. The headline print is expected to increase from the previous month, which may support the view that Norges bank still has some way to go in its fight against inflation. In addition, the recent slight rebound in oil prices may also offer some support to the Norwegian currency. CNY The Chinese yuan rallied by approximately 1% against the US dollar last week and jumped even more in trade-weighted terms. While this can partly be attributed to improving risk sentiment, we have little doubt that China’s reopening is leading to a change in investors’ approach toward the currency. The latest PMI data from China confirmed that business activity was muted in December. With the country expected to deal with additional waves of covid in the first quarter of 2023, we’ll likely need to wait sometime until the economy picks up again. Yesterday’s easing in travel rules is, however, supporting optimism as it appears to be a final nail in the coffin of the zero-covid policy. Looking ahead, we’ll keep an eye on the CPI and PPI data for December, out on Thursday. Early next week, the PBoC will set the rate on the one-year medium-term lending facility (MLF). A change there would be a surprise and instead the market focus will likely be on the rollover. Economic Calendar (09/01/2023 – 13/01/2023) To stay up to date with our publications, please choose one of the below: 📩 Click here to receive the latest market updates👉 Our LinkedIn page for the latest news✍️ Our Blog page for other FX market reports 🔊 Stay up to date with our podcast FXTalk Source: Optimism on inflation buoyes financial markets, emerging markets | Ebury UK
The South America Are Looking For Alternatives To The US Currency

This week is like a top blockbuster! Fed's and Bank's of England decision on the way!

Matthew Ryan Matthew Ryan 31.10.2022 13:58
Risk assets were steady to higher worldwide last week, as markets price in a modestly lower terminal rate from central banks and yields fall. Markets seem to be giving UK Prime Minister Sunak the benefit of the doubt on his promises to stabilise government finances, and the pound outperformed all its G10 peers to end up significantly higher against the dollar. The euro managed a middling performance, in spite of marginally dovish rhetoric from the ECB, while US economic data and corporate earnings came out on the bearish side, cementing the view that the Fed pivot to a wait-and-see attitude may not be too far in the future.   This week will be a crucial one for currency markets, and financial markets in general. The Federal Reserve meets on Wednesday, followed by the Bank of England on Thursday. The Fed is expected to hike another 75 bps, as is the Bank of England. However, the key in both cases will be the accompanying communications to markets. Central banks in Canada and Australia already have shifted to a slower pace of hikes, so we would not be surprised to see Fed officials leaning that way. The Bank of England is different in that a lot depends on the as yet undefined details of Sunak’s fiscal plans. Eurozone flash CPI data on Monday, and the US payrolls report on Friday, will round up an unusually busy week for currency markets. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 31/10/2022 GBP We saw the first signs that the budget mayhem had impacted business confidence in weaker-than-expected PMI numbers for October. Other macroeconomic data was more mixed, coming slightly above admittedly subdued expectations. However, sterling trading remains fixated on politics. Figure 2: UK PMIs (2019 – 2022) Source: Refinitiv Datastream Date: 31/10/2022 Prime Minister Sunak’s premiership is off to a solid start, with the pound trading above where it was before the disastrous budget announcement. Forecasting the Bank of England’s decision and communications is even more difficult than usual because Sunak’s budget announcement has been pushed back to November, and the MPC’s stance will be clearly dependent on the Government fiscal plans. We see a strong possibility of another three-way split vote on interest rates among MPC members this Thursday, making the task of calling the magnitude of the hike an extremely difficult one. Expect plenty of volatility this week as a result. EUR The PMIs of business activity weakened again in the Eurozone during October, but actual GDP data came stronger than expected in Germany. The ECB hiked by 75 bps and appeared to attempt some sort of muddled dovish pivot by tweaking its communications. In its statement, the bank dropped the language ‘over the next several’ meetings, in favour of expecting to raise rates ‘further’, though the reaction in the euro was not overly aggressive.As if on cue, German inflation came out much higher than expected at a knee-bending 11.6% annual rate – a full 10% higher than the ECB overnight rate after last week’s hike. Both headline and core inflation are expected to continue their march higher in October, and we think that President Lagarde will have to soon backtrack yet again on her perceived dovishness. USD Second tier data in the US from the housing market, consumer confidence and durable good orders all suggested that Fed hikes are finally beginning to have an effect. Weak tech company earnings also contributed to the sense that we may be reaching a pivot point, at least in the short-term, and that the Fed may be able to start easing off the brakes soon. The key, however, remains the labour market, where no signs of easing are evident yet. Figure 3: US House Price Index (2000 – 2022) This week’s nonfarm payrolls report comes after the Fed November meeting, where another 75 bp rate hike is a done deal and the only question is whether Chair Powell hints that the central bank is comfortable with current expectations for a terminal rate near 5% next year. Any hint of the long awaited dovish pivot from the Fed could bring about a sharp dollar sell-off. JPY The Bank of Japan once again stuck by its highly dovish monetary policy stance during its meeting last week, remaining the outlier among all the world’s major central banks. Rates were kept unchanged, with the BoJ continuing to pledge to keep the 10-year yield at 0% by purchasing unlimited amounts of bonds. The core inflation forecasts were revised higher, with policymakers noting that risks to the Japanese economy were ‘skewed to the downside’. Still, the yen was able to post modest gains against the broadly weaker US dollar. Expectations that the BoJ will continue to intervene to prop up the battered currency, having likely spent a record amount on intervention in October, should provide support for the yen in the coming weeks. Whether this will be enough to trigger a meaningful recovery in JPY remains to be seen, but we suspect it won’t be enough, barring a reversal on monetary policy from the BoJ, which doesn’t appear forthcoming. CHF Yet again, the Swiss franc was among the worst-performing G10 currencies last week. Its behaviour has been in line with broader changes in risk sentiment, which has been supported by a decline in European gas prices and easing in Fed rate hike expectations. The former has helped the franc outperform its safe-haven peers in recent weeks, albeit it has also meant that the currency has underperformed its higher risk European counterparts. Dovish signals from the ECB meeting allowed the franc to recover some of its losses on Thursday, although the EUR/CHF pair is now edging close to parity. Sentiment data from Switzerland out last week was mixed. The key KOF economic barometer did, however, dip further in October (90.9), pointing to sluggishness ahead. This week will see quite a few economic data releases from Switzerland. We’ll focus largely on consumer price data for October, out on Thursday. AUD Tuesday’s RBA meeting will be the main event risk for financial markets in Australia this week. Another 25bp rate increase is widely expected by markets, the same as the previous meeting. The upside surprise in Q3 inflation, which rose to 7.3% (7.1% expected) could make for an interesting discussion among ratesetters, and there is a small chance that the bank could surprise with a half a percentage point hike. This would be a very bullish development for AUD, as markets are only pricing in around a one-in-five chance of such a move. Figure 4: Australia Inflation Rate (2008 – 2022) Source: Refinitiv Datastream Date: 31/10/2022 Assuming the Reserve Bank of Australia sticks to the script this week, which we suspect that they will, the dollar may take its cue from a handful of macroeconomic data releases out in the coming days. The services PMI (Wednesday) is expected to remain in contractionary territory, while Q3 retail sales (Friday) is predicted to show near flat spending in the three months to September. Downside surprises here, and a dovish message from the RBA, would likely dispel any expectations of a return to a 50bp hike during the rest of the tightening cycle. NZD The New Zealand dollar outperformed its Australian counterpart last week, finishing as the second best performer in the G10, just behind the pound. A broad improvement in risk sentiment has provided good support for NZD so far in October, with the currency posting its best month in around a year at the time of writing. Unlike the RBA, the Reserve Bank of New Zealand is yet to deliver a dovish pivot, and markets are increasingly confident it will announce at least another 50bp rate hike at its November meeting.We will be looking for developments in macroeconomic data this week that could cement these already aggressive interest rate expectations. The Q3 employment and wage growth numbers on Tuesday are likely to be highly important. Economists are eying a modest uptick in job creation, which would be the first positive quarter of employment growth since the third quarter of 2021. CAD A dovish pivot from the Bank of Canada weighed on the Canadian dollar last week, causing it to be one of the worst performers in the G10. The BoC unexpectedly slowed the pace of policy tightening, delivering just a 50bp rate hike, after markets had expected a 75bp one. Its communications were also equally dovish. Governor Macklem stated that the bank was close to ending the hike cycle, citing the heightened risk of a slowdown and possible recession. We see this as a pretty clear signal that the bank will likely revert back to a ‘standard’ 25bp rate increase in December, and could end the tightening process either following the meeting, or in January, dependent on economic news in the interim. A handful of BoC members will be speaking in the coming days, though they are merely likely to reinforce the message from last week. This Friday’s labour report will likely be an important one. A downside surprise here could cement the case for a smaller hike at the last BoC meeting of the year in December. SEK The Swedish krona appreciated against most of its major peers last week, trading at its highest level since the start of the month against the euro. Macroeconomic news out of Sweden of late has been mixed, to say the least. The flash third quarter GDP print, out on Friday, was much stronger-than-expected, with the economy posting solid 0.7% QoQ expansion, well above the 0.1% contraction that economists had pencilled in. However, more up-to-date data points suggest that activity is slowing. According to data released last week, retail sales fell by 0.4% in September, the fifth consecutive monthly decline. In addition, the manufacturing PMI, to be released on Tuesday, is expected to remain in contraction territory for the second consecutive month. It appears that high domestic inflation, together with the aggressive tightening cycle undertaken by the Riksbank, are beginning to weigh on activity in the private sector. This could weigh on SEK in the coming weeks, particularly should the Riksbank disappoint at its 23rd November meeting. NOK The Norwegian krone appreciated against the euro last week, supported by expectations that Norges Bank will raise rates by 50 basis points again at this Thursday’s policy meeting. Markets are fully pricing in a 50 basis point rate hike this week, so anything less than a half a percentage point move would be a disappointment for markets and likely trigger a fall in NOK. Moreover, a 50 basis point hike, accompanied by dovish rhetoric suggesting that the central bank may ease the pace of tightening from the next meeting onwards, would be perceived as particularly bearish for the currency. Risks to the krona are elevated this week, and the bank will likely have to be extremely aggressive for the currency to receive any meaningful support. CNY The Chinese yuan was one of the worst-performing currencies last week, selling-off slightly against the broadly weaker US dollar. Sentiment towards the currency has been soured by the recent consolidation of power from President Xi’s Communist Party. This poses questions about the prospects of the private sector, and ensures that zero-Covid is likely here to stay. On Tuesday, however, the yuan posted one of its largest one-day gains in recent years on news of reported FX intervention. A report from Reuters indicated that Chinese banks were active that day, selling dollars to boost the yuan. Nevertheless, the currency faile to hold onto its gains during the rest of the week. Today’s official PMI data does nothing to help the currency’s fortunes. Both the manufacturing and non-manufacturing readings surprised to the downside and dropped below the level of 50. To some extent, this reflects softer global demand. The decline in the services sector activity was, however, particularly significant, suggesting that disruptions related to zero covid continue to weigh on domestic consumption. We’ll focus on the Caixin PMI data this week, which will complete the picture of Chinese business activity in October. The manufacturing print will be out on Tuesday, with the services index out on Thursday. Economic Calendar (31/10/2022 – 04/11/2022) Source: Ebury
The EUR/USD Pair Maintains The Bullish Sentiment

Ebury expects European Central Bank to significantly hike the interest rate

Matthew Ryan Matthew Ryan 24.10.2022 23:54
We expect another jumbo interest rate hike from the ECB this week, as it continues to play catch up to almost every other major central bank in the G10. The European Central Bank finally kicked its tightening cycle into gear at its September meeting, raising all three of its main policy rates by 75 basis points, following a half a percentage point hike in July. While the decision among policymakers was unanimous, the bank’s communications were more mixed. The bank’s inflation projection for 2022 was revised sharply higher, no surprises there, with President Lagarde saying that price pressures remained ‘far too high’. She also said that the bank planned to raise interest rates further ‘over the next several meetings’, and that upcoming policy decisions would remain data-dependent.   Financial markets were disappointed by Lagarde’s remarks on the 75bp hike, which she suggested could be a one-off, although ECB ‘sources’ were quick to correct her. We think that developments in the interim have cemented the case for another 75bp hike at this week’s meeting. Since the September meeting, economic conditions have remained broadly consistent. Euro Area inflation has hit fresh highs, consumer confidence has dropped to another low, and the PMIs of business activity are in line with a mild contraction. The uncertainty surrounding the European energy crisis presents a downside risk to growth, but we think that policymakers will overlook this and prioritise bringing down inflation. Figure 1: Euro Area Inflation Rate (2013 – 2022) Source: Refinitiv Datastream Date: 24/10/2022 In our view, another 75bp hike is all but guaranteed this Thursday – anything less would be a significant disappointment for markets as this is currently fully priced in. With that in mind, we believe that the bank’s rhetoric on the pace of hikes beyond the October meeting, notably the level of the terminal rate, will determine the reaction in the euro. We have been saying for some time that the Governing Council may need to raise rates deeper into 2023 than markets expect. As things stand, there appears to be a general view among policymakers that the terminal deposit rate may land somewhere around 2%, which we think is far too low. Any indication that rates may need to be raised deeper and more aggressively into 2023 than markets expect would drive a sharp rally in the common currency. Any news on the start date for quantitative tightening (QT), the process of unwinding the bank’s massive holdings of government and corporate bonds, could also shift the euro on Thursday. Lagarde has said in recent communications that the debate on QT has already begun among policymakers, and it’s likely that discussions will be had once again during the October meeting. That said, we think that it is still too soon for any concrete details on a start date. The ECB has already said that this won’t take place until rates are at a neutral level, which appears a long way off given the inflation outlook, while the UK’s premature QT announcement and general uncertainty in global financial markets may elicit caution. Other than that, we could get word on tweaks to the bank’s targeted longer-term refinancing operations (TLTROs), though this should have minimal implications for the FX market. There will be no fresh macroeconomic projections from the ECB this week, which could lead to a more muted response in markets relative to previous meetings. The bank’s comments on the state of the bloc’s economy, particularly in light of the ongoing uncertainty surrounding the European energy crisis could, however, guide market expectations. Should the GC indicate that growth may undershot its September projections, which we think is likely, and suggest that the pending recession could impact the tightening cycle, then the euro would sell-off. Conversely, a firm commitment to bringing down inflation at all costs would be perceived as unequivocally hawkish. Of the two scenarios, we favour the latter. Unlike many of its major peers, most notably the Bank of England, the ECB has delivered hawkish surprises in most of its recent monetary policy meetings. We think that the bar for another hawkish surprise this week may be slightly higher, as committee members appear to have done a better job in guiding market pricing. As mentioned, we do, however, still contest that markets are underestimating the pace that rates will need to go up in the Euro Area next year. In our opinion, this presents room for a higher common currency in the medium-term, even if the ECB fails to acknowledge this at Thursday’s meeting. The ECB’s policy decision will be announced at 13:15 BST (14:15CET) this Thursday, with the press conference to follow 30 minutes later. Read the article on Ebury.com: ECB October Meeting Preview: No let up in tightening just yet | Ebury UK
FX Daily: Testing the easing pushback

Matthew Ryan (Ebury) Comments On Forex Market And British Pound (GBP), Euro (EUR) And More

Matthew Ryan Matthew Ryan 06.09.2022 12:42
The euro seemed to be about to lock in a decent performance last week, buoyed by expectations of a hawkish ECB and a labour market report in the US that signalled to the Fed that pressures there may be easing. However, the announcement by Gazprom that it was cutting off gas supplies to Western Europe indefinitely late-Friday sent the euro, and indeed most currencies, tumbling against the dollar. This news brings the prospect of widespread shortages of energy in Europe closer to reality and has increased market jitters surrounding the possibility of a global recession.   An energy supply shock, while unemployment remains low and inflationary pressures are at record levels, poses an unusually difficult challenge for the ECB at its meeting on Thursday. Traders will be looking at a finally balanced decision between hiking interest rates by 50 or 75 basis points, as the Governing Council tries to make up for lost time. The gas shock last week adds even more uncertainty to the decision. Not much news out of the US in a holiday-shortened week, but the leadership contest to succeed Boris Johnson as UK prime minister may add some volatility to sterling. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 05/09/2022 GBP A raft of second-tier data points last week all came out stronger-than-expected in the UK: retail sales, house prices and mortgage approvals, as well as an upward revision to the manufacturing PMI. None of this was particularly helpful to sterling, which continued to track the euro down against the US dollar, but it does seem to indicate that people calling for an immediate recession have got a bit ahead of themselves.  Focus this week will be on the outcome of the leadership contest in the Conservative party. Should Liz Truss be announced as the winner, then the news may be positive for sterling, at least in the short term, given her focus on additional fiscal spending, more trade protectionism and, therefore, tighter monetary policy. This is a mix that has proven currency-positive, historically speaking, though it’s worth noting that at this point basically no one expects anything other than a Truss victory.  EUR Inflation data out last week confirmed that the ECB faces perhaps the toughest job of any of the world’s major central  banks. Inflation yet again surprised on the upside, in both the headline and core indices, and in both cases printed another all-time record for the Eurozone. The ECB meeting is perhaps the most critical this year. The inflation numbers are awful and the central bank is clearly behind the curve; at the same time, the energy shock that has resulted from Central Europe’s dependence on Russian gas is unlike that seen anywhere else.    Figure 2: Euro Area Inflation Rate (2013 – 2022) Source: Refinitiv Datastream Date: 05/09/2022 We think that the ECB will still hike by 75bps, as the level of rates in the Eurozone lags hopelessly behind its peers and economic reality, and there isn’t much that monetary policy can do to conjure up gas and alleviate shortages.  USD The key US labour report provided welcome relief to the Federal Reserve on Friday. While job creation continues apace, dispelling fears of a recession in the US, the labour force expanded and wages rose less-than-expected. This signals that labour demand remains hot, as confirmed by the JOLTS job openings report earlier in the week, but that it’s resulting more on an increase in the size of the workforce than on a wage spiral.    Figure 2: US Nonfarm Payrolls (2021 – 2022) Source: Refinitiv Datastream Date: 05/09/2022   Rates came down in the US as a response, and the week would have been a difficult one for the US dollar had it not been rescued just before New York closing time on Friday by that Gazprom announcement on the indefinite suspension of gas deliveries. CHF The Swiss franc has been on the back foot throughout most of the past few days. On Wednesday, the EUR/CHF pair returned back above the 0.98 level, although it gave up some of its gains later in the week as Russia’s energy saga entered into another chapter. The Nord Stream 1 gas pipeline is off again, this time indefinitely, leading some investors to seek safety in the safe-havens.  Nonetheless, growing expectations that the ECB will be more aggressive in policy tightening seems to be capping gains for the franc. While the SNB could follow with a similar-size increase of its own later this month, the gap in expectations for policy action in the medium term between the two has widened quite a bit recently, in favour of the euro. Looking ahead the franc is likely to continue to react to shifts in sentiment and monetary policy. This week’s ECB meeting and headlines regarding the energy situation in Europe will likely dominate trading.  AUD The Australian dollar depreciated sharply last week, with the AUD/USD pair trading below the level of 0.68, close to 2020 lows. With no major news last week, the strong US dollar and falling commodity prices weighed on the Australian currency.  This week will be an important week for AUD, with the Reserve Bank of Australia meeting on Tuesday and the second-quarter GDP data to be released the following day. Looking ahead to the bank’s meeting, markets expect the RBA to raise interest rates by 50 basis points. A smaller hike of 25bps is entirely possible, in our view, and could be negative for the Australian dollar, although markets will also be paying close attention to the bank’s comments on upcoming rate hikes. A hawkish tone indicating further rate hikes in the future, and that fighting inflation remains the bank’s priority, would be positive for AUD.  CAD The Canadian dollar depreciated against the US dollar last week, in line with the other major currencies, although it managed to end it as one of the better performers in the G10. Second quarter GDP data did not help CAD, as it showed that the Canadian economy grew at an annualised pace of 3.3%, below the Bank of Canada’s estimates and market expectations. The Bank of Canada is expected to deliver a 75 basis point rate hike at its meeting this Wednesday, a smaller rise than the previous one. While inflation remains high, macroeconomic activity data has started to show some signs of worsening, which is likely to justify the smaller move. Still, we expect the bank’s tone to remain hawkish and concerned about inflation. August employment data will also be released on Friday, which will be important for the Canadian dollar and expectations for future rate hikes. CNY The Chinese yuan fell to the lowest level since August 2020 against the US dollar this morning, with the USD/CNY pair seemingly heading towards the key 7.0 level. Increasing monetary policy divergence with the rest of the world, rather underwhelming domestic economic data and a series of worrying headlines, with the latest ones again focused on Covid, have weighed on the Chinese currency in recent weeks. Recently China imposed a lockdown on the country’s sixth largest city, Chengdu.  The zero-Covid push continues to threaten economic activity. While the PMI data suggests that the services sector sustained a decent expansion in August, both the Caixin and official data showed a contraction in manufacturing activity. There’s a myriad of factors to watch with regard to China in the near term. We’ll be keeping a close eye on the inflation data, with the gap between PPI and CPI price growth expected to have narrowed further in August.    To stay up to date with our publications, please choose one of the below: 📩 Click here to receive the latest market updates👉 Our LinkedIn page for the latest news✍️ Our Blog page for other FX market reports 🔊 Stay up to date with our podcast FXTalk Source: Worsening energy crisis knocks off euro in the last hours of Friday trading | (ebury.com)
Watch Ou! US Dollar (USD) May Be Starting Its Rocket Engines Soon! Markets Wondering If It's Going To Be 50 or 70bp Rate Hike

Watch Out! US Dollar (USD) May Be Starting Its Rocket Engines Soon! Markets Wondering If It's Going To Be 50 or 70bp Rate Hike

Matthew Ryan Matthew Ryan 23.08.2022 11:21
US bond yields have now retraced the fall that followed the positive inflation report from the week prior. Federal Reserve officials talked up the prospects of another jumbo interest rate hike in September, and markets are now equally split between a 50 basis point and a repeat of the previous meeting 75bp increase. Risk assets gave up some of their recent gains, and understandably the dollar bounced back strongly against every major peer worldwide. In this context, the Chinese yuan held up relatively well in spite of recent weakness in the Chinese economy, rising against every G10 currency, save the US dollar.   This week, the critical PMI advance indicators of business activity will be released in the US, the UK and Eurozone. Current levels mostly hover around the 50 line that separates expansion from contraction, so these numbers take on added importance. At the end of the week, markets await headlines and speeches from the annual meeting of the world’s central bankers in Jacksonhole, Wyoming. In particular, Chair Powell’s speech on Friday is expected to offer some clarity on the speed of coming hikes and, just as important, his expectations on how high rates will have to go before inflation is brought back under control. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 22/08/2022 GBP Bank of England policy makers received an unpleasant jolt last week, in the form of a significant upward surprise in the inflation numbers for July. Both the headline and the core rate soared to fresh record highs, the former now in double digits and expected to peak at 13% in the autumn. Markets rushed to price in more hikes from the Bank of England, but the threat of stagflation meant that sterling failed to benefit and fell against both the dollar and the euro. Figure 2: UK Inflation Rate (2016 – 2022)   Source: Refinitiv Datastream Date: 22/08/2022 The PMIs in the UK have held up better than in the Eurozone, suggesting a more resilient economy than is priced in at current pound levels, but this view will be tested this week when the advance August numbers are released on Tuesday. EUR Last week was a typically sluggish summer one in the Eurozone. With little macroeconomic or policy news, the euro mostly traded down as US rates soared and sentiment towards the Eurozone economy deteriorated on soaring energy prices. While macroeconomic news out of the bloc has held up reasonably well so far under the circumstances, the jump in energy prices continues to worsen the outlook, and has helped drive EUR/USD back through parity levels this morning. As elsewhere, the PMI advance indices on Tuesday will be key. However, given how far behind the curve the ECB is with respect to inflation, we do not think that it can afford to let up on policy normalisation, even if a mild recession materialises. USD Strong second tier data and a determined push back form Fed officials against any notion of a ‘dovish pivot’ drove US rates higher last week, and this in turn boosted the dollar. Last week’s FOMC meeting minutes were actually initially seen as dovish, although investors appeared to have a change of heart as focus shifted to the Fed’s comments on inflation, which indicated members saw no let up in price pressures. This week, the PMIs are released on Tuesday, as elsewhere. However, they typically make less of a splash in the US. Markets will look to the PCE inflation report later in the week to corroborate the good news from the CPI report. Regardless, it is unlikely that the Fed will be deterred from its hiking campaign and the main question for Chair POwell atr Jackson Hole will be whether 50 or 75 bp are coming in September. CHF The Swiss franc has rallied to fresh highs against the euro in the past few trading sessions, with the EUR/CHF pair currently trading below the levels seen following the removal of the trading peg in early-2015. Broad euro weakness has dragged the pair lower so far this morning, although the franc is also benefiting from rising risk aversion, as markets brace for a slowdown in global growth between now and year end. Investors continue to favour the franc over its fellow safe-haven, the Japanese yen, in light of the policy divergence between the SNB and Bank of Japan. Whether this outperformance continues may depend on SNB interventions. The bank actually appears to have been rather active in selling francs in the past few weeks, with total sight deposits, a proxy for interventions, increasing in every week since mid-July. This may be an indication that the EUR/CHF pair may be approaching a near-term low. There will be no major economic data releases out of Switzerland this week, so expect the franc to be driven largely by goings on elsewhere. AUD The Australian dollar was one of the worst performing currencies in the G10 last week, falling by almost 3% against the US dollar. Fears of an economic slowdown and a weaker than expected domestic jobs report hurt the Australian currency. While the unemployment rate fell to a more than 40-year low of 3.4% in July, net employment dropped by 40,900, contrary to what was expected (+25k). This mixed report raises question marks about the magnitude of the next interest rate hike from the Reserve Bank of Australia. Prior to the meeting, markets were pricing in another 50 basis point move in September, although we think that this is now in serious doubt. Markets also appear torn, with swaps indicating a 50/50 chance of such a move. Figure 3: Australia Net Employment Change(2017 – 2022) Source: Refinitiv Datastream Date: 22/08/2022 Advanced PMIs for August will be published tomorrow, and are expected to show an improvement on July’s data. Aside from that, AUD will be driven by market risk sentiment and expectations about rate hikes. CAD The Canadian dollar depreciated against the US dollar last week, although the sell-off was smaller than that of its G10 peers. In line with expectations, Canada’s inflation rate fell to 7.6% in July, after reaching a near four-decade high in June, mainly due to a fall in gasoline prices. However, core inflation surprised on the upside and remains at very high levels, suggesting that price pressures have broadened across more components. We believe that the Bank of Canada will continue its aggressive monetary tightening cycle, with a decent chance of a 75 basis point move at the next meeting in September. Markets are currency pricing in around a 50% chance of another bumper move, having seen very little chance of one this time last week. With no major domestic data to be released this week in Canada, we think that oil prices and market sentiment will be the main drivers of the Canadian dollar this week. CNY Somewhat uncharacteristically, the yuan underperformed most of its Asia counterparts last week, with the currency slumping to a near two-year low on the broadly stronger US dollar. A rather underwhelming set of macroeconomic figures released at the beginning of last week weighed on the yuan. Industrial production, fixed asset investment and retail sales data for July all fell short of expectations, as the prolonged COVID-19 restrictions in the country continue to worsen the growth outlook and sour sentiment towards Chinese assets. The ongoing property crisis in China, and policy easing from the People’s Bank of China, are also far from helping the currency’s cause. The PBoC trimmed its one-year loan prime rate, albeit only by 5 basis points, to 3.65% on Monday, while lowering its five-year lending rate by 15 basis points to 4.3%. As long as Chinese authorities continue to staunchly stick by their zero-covid approach, additional rate cuts and sluggish domestic data appear likely. Both present clear downside risks to the yuan in the coming months.Economic Calendar (22/08/2022 – 26/08/2022) To stay up to date with our publications, please choose one of the below: 📩 Click here to receive the latest market updates👉 Our LinkedIn page for the latest news✍️ Our Blog page for other FX market reports 🔊 Stay up to date with our podcast FXTalk Source: Dollar bounces on higher yield as euro breaks below parity | Ebury UK
JPY: Assessing the FX Intervention Zone and Market Conditions

Signs of US slowdown slam dollar; Euro mixed on CB hawkish surprise

Matthew Ryan Matthew Ryan 25.07.2022 14:29
Disappointing economic data out of the US brought yields down worldwide and removed any chance of a 100 basis point interest rate hike from the Federal Reserve this week. T he surprise 50bp hike from the ECB had surprisingly little immediate impact on the common currency, which nevertheless joined in the general bounce back against the US dollar. Commodity currencies both in the G10 and emerging markets performed particularly well as commodity prices stabilised.   Wednesday’s Federal Reserve meeting will dominate financial news this week. Also important will be the inflation report out of the US and the Eurozone, both out on Friday. The key question for markets is how fast the slowdown in activity evident in most economic areas will translate into downward pressure on inflation data. This will be the key question the Federal Reserve will be grappling with at its July meeting. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 25/07/2022 GBP Macroeconomic news out of the UK took a clear turn for the better last week. Activity surveys surprised to the upside and remain consistent with steady growth. The labor market continued to generate jobs at a healthy clip in May. Finally, while headline inflation remains sky high, core inflation has now declined for two consecutive months. Sterling did not react much, moving mostly with the Euro against the dollar, but this positive newsflow could set the stage for a rally in the next few weeks, especially as valuation remains supportive of the Pound. Figure 2: G3 Composite PMIs (2019 – 2022) Sterling did not react much, moving mostly with the euro against the dollar, but this positive newsflow could set the stage for a rally in the next few weeks, especially as valuation remains supportive of the pound. EUR The ECB surprised markets with a 50 basis point rate hike, an event to which we had assigned a 50% probability. The initial positive reaction of the currency faded away somewhat as markets still don’t feel they didn’t receive enough details about the ECB’s new anti-fragmentation tool. On a side note, it did away with forward guidance, part of a much needed move away from relying on its thoroughly inadequate forecasting capacity, on which we have commented often. This uncertainty, combined with negative surprises in the PMI activity numbers, which suggest that the Eurozone economy is stagnant, capped the euro gains against the dollar and kept it hovering not far from parity. All eyes will now be on Friday’s flash CPI numbers, which are expected to show that core inflation has not yet peaked in the Eurozone. USD There were undeniable signs of an economic slowdown in the US last week. Weekly jobless claims continue to tick up, albeit from an extremely low level. Higher mortgage rates continue to drive a housing slowdown, though housing starts remain historically high. Most worrisome in our view was the drop in the PMIs to levels consistent with outright contraction. Figure 3: US PMIs (2019 – 2022) Source: Refinitiv Datastream Date: 25/07/2022 While central banks worldwide have consistently surprised on the hawkish sidem, we do not expect this to be the case next week at the Federal Reserve July meeting, as signs of a US slowdown should be enough to keep its increase to 75bp. More generally, we think outsize rate increases are now a thing of the past, and we should revert to the 25 or 50 bp of the past after the July meeting, which could cap dollar gains. CHF The Swiss franc ended the week around the middle of the pack in the G10 performance tracker. The currency was able to regain its earlier losses against the euro after disappointing PMI prints heightened recession fears in the Eurozone on Friday. SNB sight deposits have increased in the past two weeks, suggesting that the central bank may have intervened to limit the currency’s strength. These increases haven’t been particularly sizable, although they mean that the numbers are worth monitoring. Should this increase in intervention continue, this could indicate that the SNB is not too keen to see the currency appreciating much from current levels. As the market is currently largely driven by recession fears, we’ll continue to focus primarily on outside news that might affect market sentiment. That said, the country’s KOF leading indicator could be worth watching on Friday. AUD The Australian dollar appreciated against the US dollar last week and is trading near one month highs, as poor US data caused the dollar to depreciate against all of its G10 counterparts. The latest Reserve Bank of Australia meeting minutes, published last week, signalled further monetary tightening was on the way. In the RBA’s view, interest rates are ‘still too low for an economy with a tight labour market and facing a period of higher inflation’. The bank also warned that risks to inflation were tilted to the upside, and that steady increases in interest rates are therefore required in the coming months. We think that this hawkish commentary all but guarantees another 50 basis point rate hike from the RBA at its upcoming monetary policy meeting next week (02/08). In the meantime, second quarter inflation data will be published on Wednesday. In addition, we will also pay close attention to the June retail sales data to be published on Thursday. CAD The Canadian dollar strengthened against the US dollar last week, due largely to the pause in the dollar’s rally following last week’s poor US economic data and the hawkish tightening stance adopted by the Bank of Canada. Data published last week showed that Canada’s inflation rate rose less than expected to 8.1% in June, although it still reached its highest level since 1983. On a monthly basis, consumer prices rose by 0.7%, below expectations of a 0.9% increase, and easing on the 1.4% jump a month earlier. The fact that inflation remains at very high levels should put pressure on the BoC to continue raising interest rates, although we see effectively no chance that they’ll hike in 100 basis point increments at upcoming meetings, as they did earlier this month. Together with the May GDP data out on Friday, we think that oil prices and market sentiment will be the main drivers of the Canadian dollar this week. CNY The Chinese yuan ended last week little changed against the US dollar, which can be viewed as disappointing considering the broad weakness of the latter. In fact, the trade-weighted RMB CFETS index turned lower, shedding a little more than 1% during the week. Investor sentiment towards China continues to be challenged by covid fears, as the number of new infections hovers around a two-month high. Recently, however, it seems that the property crisis had a similar, if not a stronger, effect on sentiment. A mortgage boycott has added to the strain on the sector that has been under pressure for many months, facing declining property prices and slowing buying. The issue is gathering the attention of Chinese authorities, with the country preparing a sizable real estate fund to help the developers, according to media reports. Last week’s economic calendar was largely empty. As expected, the loan prime rates were left unchanged. Going forward we’ll continue to focus on pandemic developments and keep an eye on the real estate sector. We’re also waiting for China’s July PMI numbers, with the official readings set for release on Sunday. Economic Calendar (25/07/2022 – 29/07/2022) To stay up to date with our publications, please choose one of the below: 📩 Click here to receive the latest market updates👉 Our LinkedIn page for the latest news✍️ Our Blog page for other FX market reports 🔊 Stay up to date with our podcast FXTalk   Source: Signs of US slowdown slam dollar; Euro mixed on CB hawkish surprise | Ebury UK
US inflation surprise sends dollar soaring

US inflation surprise sends dollar soaring

Matthew Ryan Matthew Ryan 18.07.2022 16:24
The peak in US inflation has been getting pushed into the future for some time, and June was no exception. The unpleasant surprise sent the dollar soaring generally, but the euro put up a spirited defence of the psychologically important parity level and, after breaching it briefly, managed to end the week above it. Markets are now pricing in some possibility of a nearly unprecedented 100 basis point rate hike at the next Federal Reserve meeting, and in this context it is somewhat reassuring that risk assets like stock markets and emerging market currencies managed to end the week flat to slightly down. All eyes now are on the ECB meeting on Thursday. With a 25 bp hike baked in and markets pricing a 10% chance of a 50 bp surprise, there will be some room for appreciation if the ECB decides to jolt markets. The Bank of Japan also meets, and it’s expected to remain the odd one out in monetary policy, hanging on to its pre-inflation extreme accomodation. Inflation in the UK (Tuesday) and July PMI leading indices across most major economies will round out an extremely busy week. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 18/07/2022 GBP Solid economic data for May published last week in the UK, notably the May GDP print (Figure 2), did little to help the pound, which fell against every G10 peer, except the Japanese yen. CPI data out on Wednesday is likely to rise to yet another multi-decade record, which together with the hawkishness suggested by recent Bank of England speeches would validate our expectation for a double-sized 50 bp hike in August. Figure 2: UK GDP [MoM] (2021 – 2022) Source: Refinitiv Date: 18/07/2022 The labour market report this week will also tell us whether second round inflationary effects are becoming evident in the wage-setting process. The PMIs of business activity will bookend this extremely busy week, and consensus expects them to all remain safely within expansionary levels. EUR New out of the Eurozone economy last week was mixed, with a sharp contraction in car registration but a positive surprise in May industrial production. Markets roundly ignored these second-tier reports, and are focused on two key events. In addition to the European Central Bank meeting on Thursday, the Nord stream one gas pipeline is scheduled to restart gas deliveries on the same day, which could make for some seriously volatile trading. Investors are concerned that the 10-day maintenance period could be delayed beyond this date. The market is set on a 25 bp hike on Thursday, which would open a window for the ECB to surprise markets and begin to restore its inflation-fighting credibility. But perhaps more important than the actual policy move will be the level of unanimity that is achieved around the anti-financial fragmentation toolkit, which is a euphemism for restarting the purchase of weak peripheral bonds using freshly printed euros. This promises to be one of the busiest trading weeks in many months for the common currency. USD The hopes that inflation in the US has seen its peak, which were fanned by last month’s PCE report, were dashed by another unpleasant surprise in the June CPI report. However, we think that hikes of more than 75 bps are unlikely, and markets have got ahead of themselves in pricing their likelihood, and the scorching dollar rally is becoming vulnerable to a correction in those expectations. This week, the dollar will cede the spotlight to other currencies, particularly the euro, as only second-tier data gets published. For once, the dollar should trade off of developments elsewhere. Figure 3: US Inflation Rate (2012 – 2022) Source: Refinitiv Datastream Date: 18/07/2022 CHF The Swiss franc reached another high against the euro last week and was the third best-performing G10 currency, just behind the US dollar. There was little news from Switzerland, and the EUR/CHF exchange rate seems to have largely reflected euro weakness. Over the weekend, Swiss newspaper Schweiz am Wochenende reported that the SNB is planning to raise interest rates by another 50 basis points in September, but may go with an even larger 75 bp hike if inflation edged higher. We think it’s very early for such considerations, but for now we are erring more towards a 50 bp rate increase. Either way, an exit to sub-zero rates in Switzerland seems just around the corner. This week, we’ll focus primarily on outside news, which should be key for the EUR/CHF rate. The second part of the week looks especially busy, as the ECB meets, Nord Stream 1 maintenance is set to end and PMI prints for the main economies will be out. AUD Last Thursday’s scorchingly hot Australian labour report provided good support for the Aussie dollar towards the end of last week, with AUD opening London trading this morning back above the 0.68 level on the USD. A net 88.4k jobs were added to the Australian economy last month, well above the 25k consensus and the fastest pace of hiring since the boom in employment following the end of the delta lockdowns in November. The unemployment rate also dropped sharply, falling to a fresh record low 3.5% from 3.9%. Clearly, the Australian labour market is in a good place, and that has translated into investors ramping up expectations for tighter RBA monetary policy. We think that another 50 basis point rate hike from the RBA at its August meeting is now effectively a done deal – swap markets are even pricing in a near 50% chance of a 75 basis point move. A number of central bank speeches, including from governor Lowe, are scheduled for this week. Should they tee up the possibility of a 75 bp hike, and Thursday’s PMI number print well above the level of 50, then these expectations would rise further, and AUD would likely perform well. CAD The Bank of Canada shocked markets last week, raising interest rates by a full one percentage point to 2.5%, after investors had expected a 75 bp hike. In justifying the bank’s decision to frontload the tightening cycle, governor Maklem noted that Canadians ‘are getting more worried that high inflation is here to stay. We [the BoC] cannot let that happen.’ We think that this is a clear acknowledgement the BoC has underestimated the extent of the inflation overshoot, and now needs to correct this by getting rates closer to neutral levels much faster than they had originally anticipated. Markets are bracing for another 50 bp hike at the next meeting in September, but another surprise to the upside in inflation in the interim could again trigger a larger move. Somewhat surprisingly, however, the Canadian dollar only received fleeting support from the bumper hike, and fell sharply on Thursday before recovering towards week-end. This week will be a very busy one for the currency, with inflation data (Wednesday) and retail sales (Friday) expected to be closely watched by market participants. CNY The Chinese yuan fell against the dollar last week, and USD/CNY soared to its highest level since mid-May. Despite some negative headlines from China, notably an extension or introduction of fresh pandemic restrictions in some cities, this was more a consequence of broad US dollar strength. The trade-weighted CFETS RMB index continued to increase, if only marginally. Last week’s economic data from China were mixed. The second-quarter GDP print came in far below expectations, with the economy posting annual growth of just 0.4%. Some of the readings covering the end of the period, such as exports and retail sales were noticeably better than expected, while others disappointed. A particularly ominous trend seems to be an increase in youth unemployment, which hit a record high of 19.3% in June. The data defied the broad survey-based unemployment rate, which actually declined in June. Figure 4: China Annual GDP Growth Rate (2021 – 2022) Source: Refinitiv Date: 18/07/2022 Looking ahead, we’ll continue to focus on the pandemic news. A further deterioration here could shift sentiment towards the yuan and Asia as a whole, which has been relatively shielded from recent global recession fears. Aside from that, the PBoC will announce the loan prime rates (LPR) this Wednesday. Any change here would be a big surprise. Last week, the rate on the one-year medium-term lending facility (MLF) was left unchanged, and the PBoC renewed 100 billion yuan of maturing loans, in line with expectations. To stay up to date with our publications, please choose one of the below: 📩 Click here to receive the latest market updates👉 Our LinkedIn page for the latest news✍️ Our Blog page for other FX market reports 🔊 Stay up to date with our podcast FXTalk Source: US inflation surprise sends dollar soaring | Ebury UK
ECB's Dovish Shift: Markets Anticipate Softer Policy Guidance

Europeans Are Affraid Of Energy Situation. US Jobs Data May Trigger Scare Of Recession

Matthew Ryan Matthew Ryan 11.07.2022 15:00
Increasing concerns about the fragility of natural gas supplies to Europe, combined with good economic news from the US labour market, means that recession fears are now more sharply focused in Europe. European currencies performed badly as a consequence with the euro leading the way down, falling over 2% against the dollar. Neither Boris Johnson’s resignation nor Shinzo Abe’s assasination seemed to have much direct impact on the respective currencies, and sterling actually put in a decent performance, rising sharply against the euro. The best performing emerging market currency was, somewhat surprisingly, the Brazilian real, which bounced back on valuation after the recent sell off left it at undervalued levels again. US CPI We now go into Inflation Week in the US. The CPI report has become the most critical data point worldwide. The headline number out on Wednesday is expected to show yet another multi-decade high, but the core data may pull back somewhat. Aside from that, it will be a news-light week, and the always unpredictable headlines regarding the energy situation in Europe may have an oversized impact on markets. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 11/07/2022 GBP The resignation of Boris Johnson was the spotlight in an otherwise data-light week, but sterling actually managed to rise on the news against all other European currencies and nearly keep up with the relentless dollar rally in spite of it. The avoidance of an ugly and potentially drawn out removal from office gave the pound a modest leg up, although uncertainty remains over the identity and timing of Johnson’s replacement. Regardless, we expect little to no major changes in policy, so the impact on the pound is likely to be minor. The June PMIs of business activity were revised higher, which provided a positive backdrop for the pound. Focus will be back on the economy this week, with May data out on construction, industrial production and the trade balance. EUR Broad dollar strength and jitters about natural gas supply to Central Europe conspired last week to push the euro to a two-decade low. The breaking of recent support levels exacerbated the move, as did heightened calls for parity in the EUR/USD pair, which looks increasingly more likely by the day. Figure 2: EUR/USD (May ‘22 – July ‘22) Source: Refinitiv Date: 11/07/2022 Valuation is as cheap as ever, and positioning is even more stretched this week, but the fear of a disruption in natural gas supplies that would cause stoppages in Central Europe makes the common currency a hot potato no one wants to hold, at least for now. There is no market moving news on tap this week out of the Eurozone, so the CPI report in the US will be key. Investors may also have one eye on next week’s European Central Bank meeting. USD Yet another strong labour market report out of the US validates our view that a recession there is not in sight. Jobs continue to be created at a much faster pace than the growth in the labour force, unemployment remains well below 4% and the number of job openings dwarfs that of job seekers – hardly the stuff of which recessions are made. Figure 3: US Nonfarm Payrolls (2021 – 2022) Source: Refinitiv Datastream Date: 11/07/2022 Markets are again pricing it a high likelihood of a 75 bp hike from the Fed at the July meeting. However, the key hurdle remains the inflation report this week. More important than the headline number, in our view, will be the more meaningful core index. There have been hints of stabilisation there in other reports, such as the PCE. A downward surprise could lead markets to revert back to pricing a 50bp hike and, given stretched positioning, cause a countertrend sell off in the greenback. CHF Following a few weeks of outperformance, the Swiss franc ended last week near the bottom of the pack in the G10. With market worries concentrated in Europe, the franc (a safe haven, but still European currency) was not the first choice among investors last week. That said, the currency edged higher against a broadly weaker euro, and the EUR/CHF rate dropped below the 0.99 level on Wednesday. With not much data on tap this week, we’ll focus primarily on outside news. Keeping in mind the market’s recession fears, and the SNB’s laid back approach to a degree of currency strength, we wouldn’t be surprised to see the franc remaining well-bid in the near term. AUD The Australian dollar was the best performing currency in the G10 last week, and even posted modest gains against the safe-haven US dollar. We saw a classic ‘buy the rumour, sell the fact’ reaction to last week’s Reserve Bank of Australia meeting. Interest rates were raised by 50 basis points, as we had anticipated, marking the third straight hike and the fastest pace of policy tightening since the mid-1990s. While AUD rallied in the day prior to the meeting, it sold-off following the announcement, as the RBA’s accompanying rhetoric was perceived as dovish. Governor Lowe said that the board expected additional tightening, although the bank said that medium-term inflation expectations were well anchored, with inflation set to return to the target range at some point next year. Markets viewed this as in line with a possible slowdown in the pace of hikes at subsequent meetings, and swaps now only see a 50/50 chance of another half a percentage point hike at the next policy meeting in August. Thursday’s monthly Australian labour report will be the main focus for markets this week. An easing in net job creation is expected, although economists are bracing for a fresh record low unemployment number. CAD CAD outperformed most European currencies last week, although still ending the week lower against the US dollar, as a sharp move lower in global oil prices weighed on commodity-dependent currencies worldwide. Heightened recession concerns triggered a rough 10% sell-off in Brent crude oil prices last Tuesday, sending the commodity to back below $100 a barrel at one stage. The Canadian dollar was, however, able to hold its own during the remainder of the week, and was largely unchanged following Friday’s mixed labour report for June, which showed a sharp contraction in jobs (-43.2k), but a move lower in unemployment (4.9% from 5.1%). Figure 4: Canada Net Employment Change (2021 – 2022) Source: Refinitiv Datastream Date: 04/07/2022 Attention this week will all be on Wednesday’s Bank of Canada meeting. Following the sizable upside surprise in the May inflation report, we think that the BoC will follow in the Federal Reserve’s footsteps in raising rates by 75 basis points this week. Markets are, however, almost entirely pricing this in, so the reaction in CAD will likely be far more dependent on the bank’s communications on future rate increases. Any indication that an additional 75bp move could be on the way in September would be bullish for CAD, while the lack of one would be seen as a pretty significant disappointment, and could trigger a fairly sharp sell-off in the currency. CNY While the USD/CNY rate ended the week almost unchanged, the Chinese yuan was the second-best performing emerging market currency last week, after the Brazilian real. The Asia–Pacific currencies fared the best on the whole, as the gap between market sentiment towards economies there and in other regions (particularly in Europe) widened. One reason for that has been improving economic data from China. Similar to other PMI prints, the services PMI from Caixin was much better than expected. The index surged to 54.5, its strongest expansion in almost a year and the first since February. Assuming an easing in pandemic concerns, we are likely to see more of these positive headlines going forward. It might be a big ‘if’, however. Just last week, China announced new lockdown measures in Xi’an, a northern city of 13 million. Infections have also increased in Shanghai. This week is jam-packed with data from the mainland. Second-quarter GDP growth on Friday will catch the most attention. Due to Covid-related disturbance, it’s expected to show the first contraction on a quarterly basis since Q1 2020. In addition, the PBoC will set the MLF rate. Any immediate change would be a big surprise considering improving economic numbers, notably on inflation, which edged closer to target and surprising to the upside in June (2.5%). To stay up to date with our publications, please choose one of the below: 📩 Click here to receive the latest market updates👉 Our LinkedIn page for the latest newsâœÂï¸Â Our Blog page for other FX market reports 🔊 Stay up to date with our podcast FXTalk   Source: European currencies plummet on recession fears | Ebury UK
Sustainability-Linked Products: Navigating Growth and Challenges for the Future

What Could Help GBP? US Dollar (USD) Increased Last Week. Why US NFP Is So Important? What's Affecting FX Market At The Moment?

Matthew Ryan Matthew Ryan 05.07.2022 11:49
Last week was a fitting end to a brutal first half of the year for risk assets generally. Recession fears Recession fears are now driving currency markets, more than central bank policies or interest rate differentials, and the dollar has benefitted. Last week was no exception. As stocks retreated and government bond rates saw record falls, the greenback rose sharply against all its major peers except for the Japanese yen, which seems to be trying to regain its status as a safe-haven currency. Emerging market currencies fell against the dollar, but for the most part held their own against European currencies, as cheap valuations and massive interest rate differentials in their favour seem to be enticing at least some investors. Non-farm Payrolls Recession fears have intensified, to an unwarranted extent in our view. That makes this week’s payroll report out of the US key. We expect another strong report, with above-trend job creation numbers, record low unemployment and healthy nominal wage increases, which should help alleviate fears somewhat. Aside from that, the minutes for the last Federal Reserve and ECB meetings will be published and that should shed light on the trade off that central bankers see between reining in inflation and risking a sharp economic slowdown. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 04/07/2022 GBP - British Pound Most economic data out of the UK last week came out largely as expected, with one glaring and worrisome exception: the current account deficit, which surprised to the downside and is now in the high single digits as a percentage of GDP. Of course, these numbers are clouded by the massive increase in energy prices, where the UK is an importer, but nevertheless this is a key indicator to watch. No major news this week means sterling will trade off developments elsewhere, though there are a few Bank of England speeches on tap. Any indication that policymakers are erring towards raising rates by 50 basis points at the next MPC meeting in August would be positive for the pound, and may trigger a recovery rally from currently suppressed levels. Euro - EUR While US inflation shows some signs of peaking, that is not the case yet in the Eurozone, partly because of the larger impact from energy prices and partly because of generally lagging economic data there. The mild relief we saw in the core inflation index last week was entirely due to one-off administrative measures in Germany, while double digit inflation in Spain made for some unpleasant headlines. More positive, and virtually unnoticed, was the fall in the unemployment rate to a new record low. Figure 2: Euro Area Inflation Rate (2013 – 2022) Source: Refinitiv Datastream Date: 04/07/2022 With a 25 basis point hike all but certain at the next meeting and a 50 bp one on the cards for the following one, we think that a lot of bad news is priced into the common currency at current levels, and there is room for a significant rebound as and when risk assets stabilise. USD - US Dollar There were some encouraging signs last week that inflation in the US, while not yet falling, has at least stopped rising. The core measure of the personal consumption expenditures price index (PCE) undershot expectations and seems to have stabilised at an annualised level of around 4%, which is too high from comfort but considerably below headline inflation. Now that food and energy commodity prices have stopped rising and are in some cases falling, we could see lower inflation in the months ahead. Figure 3: US PCE Inflation Rate (2012 – 2022) Source: Refinitiv Datastream Date: 04/07/2022 We now think it is unlikely the Fed will hike 75bp again, which is at least moderately bullish for the euro and risk assets generally, particularly given markets are pricing in around a three-in-four chance of such a move at the next FOMC meeting on 27th July. CHF - The Swiss franc continued to edge higher against the euro last week. The Swiss franc continued to edge higher against the euro last week. In the middle of the week, the EUR/CHF pair fell below parity to its lowest level since January 2015. The franc rallied in line with its fellow safe-havens, as fears surrounding global growth intensified, souring risk sentiment. Last week’s sentiment data from Switzerland painted a mixed picture. Meanwhile, this morning’s inflation data for June rose to 3.4%, its highest rate since 1993. The higher-than expected reading, and evidence of strong price momentum (0.5% MoM in the headline), adds to pressure on the Swiss National Bank to maintain its hawkish bias and tighten policy further at upcoming meetings. This week we’ll focus primarily on outside news. Heightened fears surrounding recessions globally are likely to shift sentiment this week, which we expect to be a key factor affecting the franc in the near-term. AUD The Australian dollar depreciated against the US dollar last week, in line with commodity currencies and risk assets in general, as fears about a possible global economic downturn increased. Following the sell-off, AUD is trading at its lowest level in two years, close to the 0.68 level on the dollar. Attention in Australia this week will be firmly on Tuesday’s Reserve Bank of Australia meeting. Our out of consensus call for a 50 basis point interest rate hike at the June RBA meeting came to pass, and we expect another rate increase of the same magnitude this week. This is far from fully priced in by markets, which provides room for upside in the dollar. Forward guidance communications will also be highly important for the Australian currency. We believe the bank will signal that additional interest rate hikes are on the way, including another 50bp move in August, as domestic inflation shows no signs of abating. Aside from this week’s RBA meeting, PMI and trade balance data on Tuesday and Thursday respectively will be worth keeping tabs on, while shifts in market sentiment will also continue to drive AUD in the coming days. CAD - The June unemployment report out on Thursday will be key this week, as it will be the last important data point released ahead of next week’s Bank of Canada monetary policy meeting. The Canadian dollar weakened against the USD last week, due largely to the general worsening in risk sentiment and easing in commodity prices. CAD did, however, outperform most of its G10 counterparts. There was no clear catalyst for this outperformance, although rising bets in favour of a bumper 75 basis point interest rate hike from the Bank of Canada at its meeting next week no doubt helped. The June unemployment report out on Thursday will be key this week, as it will be the last important data point released ahead of next week’s Bank of Canada monetary policy meeting. The unemployment rate is expected to increase slightly, but remain at very low levels, with investors also on the lookout for continued signs of solid wage growth and healthy net job creation. Should this prove to be the case, then a 75 basis point rate hike at the next central bank meeting would become increasingly more likely. Together with the employment report, we think that oil prices and market sentiment will be the main drivers of the Canadian dollar this week. CNY The Chinese yuan edged lower against a broadly stronger US dollar last week, albeit the CFETS RMB index, which measures the currency against a weighted basket, managed to post yet another week of gains. An easing in covid fears as virus restrictions are lifted, and data pointing to a more robust than anticipated rebound in the Chinese economy both helped support CNY last week. The official composite PMI jumped to 54.1 in June, helped by much stronger-than-expected expansion of the services sector. Similarly to the official indicators, the Caixin manufacturing PMI, which is oriented towards smaller, private firms, also posted its first expansion since February. Figure 4: China NBS PMIs (2019 – 2022) Source: Refinitiv Datastream Date: 04/07/2022 In the first half of the week, we’ll continue to focus on the latest PMI data, with the Caixin services and composite PMIs out on Tuesday. Saturday will see the release of consumer and producer price growth data for June, which will be important for assessing future steps of the PBOC. So far, the bank has continued to pledge its willingness to support the economy, particularly focusing on credit expansion. Economic Calendar (04/07/2022 – 08/07/2022) Source: Recession fears drive investors to safe havens | Ebury UK
Chinese Data Shakes Dollar, US Stocks Higher Amid Disinflation Concerns and Bank Earnings Awaited

Currencies in holding pattern ahead of fresh inflation data

Matthew Ryan Matthew Ryan 28.06.2022 09:41
G10 currencies ended the week not far from where they had started it, as the news calendar turned relatively light and investors digested central bank communications. T he week’s winner was the Swiss franc, boosted by the aftereffects of the Swiss National Bank’s dramatic hawkish surprise earlier in the month. Emerging market currencies were a mixed bunch, but for the most part they held up rather well in view of the massive sell-off we saw last week across the commodity complex.   The rally in risk assets last week suggests some easing on investor concerns about the inevitability of a recession, as central banks struggle to get inflation under control. Inflation data out on Thursday and Friday will be in focus on both sides of the Atlantic this week. The US May PCE data will likely confirm the earlier CPI report. More critical will be the Eurozone flash inflation report for June, the earliest read of inflation across all economic areas. A print above 4% in the core index would put further pressure on the ECB to accelerate its timetable for hikes, potentially buoying the common currency. GBP May inflation in the UK hit yet another multi-decade record, though the core index that strips out the more volatile food and energy components provided a tenuous silver lining, coming under expectations just below 6%. Last week’s business activity PMIs actually held up relatively well, with the composite index unchanged at 53.1 in June, albeit a drop in the business expectations component suggests a slowdown in the index is likely on the way. Sterling continues to trade in line with risk assets, however, and benefitted from the recovery in world stock markets last week. This week we will pay close attention to consumer credit; our view that consumers will prove resilient to the squeeze in real incomes by drawing down on savings accumulated during the pandemic will be tested. EUR The PMIs of business activity for June were broadly disappointing, falling back significantly. The composite index slipped to 51.9, its lowest reading since February 2021. While they all remain at expansionary levels across the major economies of the Eurozone, the downward trend needs to be watched closely, as these indices remain the best leading indicator for European growth. This week could be quite crucial for the euro. In addition to the June flash inflation report, the ECB’s annual forum on central banking takes place. Markets are expecting to see at least some details on the coming “anti fragmentation” tool, which was announced to be in the works following the bank’s recent ad-hoc meeting. Should this be deemed by investors as sufficient in order to close bond spreads in the bloc, then we could see some modest support for the euro this week. USD The dollar retreated modestly last week from near multi-year highs. Three factors appeared to weigh on the dollar. First, the retreat in US yields, as markets find it increasingly implausible to price in more hikes from the Fed in the near-term. Second, the general rebound in risk sentiment, which is now a clear negative for the safe-haven dollar. Finally, trader positioning looks increasingly long dollars, as a near consensus seems to be established for a stronger greenback, which makes it difficult for it to rally further and turns mild setbacks into stop loss driven sell-offs. We think that a strong Eurozone inflation report on Thursday could lead to a strong countertrend sell off-in the dollar. Source: Currencies in holding pattern ahead of fresh inflation data | Ebury UK
Trading Signals For The New Zealand Dollar To Swiss Franc Pair (NZD/CHF)

Ebury Weekly Analysis: Australian Dollar (AUD), Canadian Dollar (CAD), Chinese Yuan (CNY) | Ebury

Matthew Ryan Matthew Ryan 23.05.2022 15:20
AUD A broadly weaker US dollar, the easing of restrictions in China and expectations of a more rapid pace of tightening by the RBA boosted the Australian currency last week. The Australian dollar was one of the best performing currencies in the G10, briefly rallying through the 0.71 level against the US dollar this morning. The Reserve Bank of Australia’s May meeting minutes showed that the board is prepared to raise rates by larger increments at upcoming meetings in order to tame inflation. The minutes also showed that inflation is expected to increase further in the near-term, which has raised expectations in favour of more aggressive tightening. The latest economic data supports these expectations, with Australia’s unemployment rate falling to 3.9% in April, the lowest since August 1974. The most important event for AUD this week will likely be the release of the May preliminary PMIs on Tuesday, which are expected to remain in expansionary territory. On Friday, April retail sales will be published. Learn more on Ebury CAD The Canadian dollar ended the week modestly higher against the US dollar as Canadian inflation reached a three-decade high, although the currency underperformed most of its G10 peers. Canada’s April inflation surprised to the upside, reaching a 31-year high of 6.8%. The rise in commodity prices, mainly due to the war between Russia and Ukraine, continues to pressure inflation higher. But this is not the only reason and it seems that price pressure is spreading to more components, as core inflation rose to a record high of 5.8%. This data reinforced expectations of another 50 basis point hike at the Bank of Canada’s June meeting, which has continued to provide a bit of support for the Canadian dollar. On Thursday, March retail sales will be published. Aside from that, CAD is likely to be driven by events elsewhere. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM CNY Last week was a turning point for the yuan, with the USD/CNY pair returning to early-May levels amid a weaker US dollar and improving headlines out of China. News on the Covid front has taken a turn for the better. Shanghai has begun lifting some of its restrictions, with the city set to exit lockdown at the start of next month. Beijing has also continued to resist calls for a lockdown, despite another increase in virus caseloads. Last week’s 15 basis point cut to the PBoC’s 5-year loan prime rate, a reference rate for mortgages, has also raised hopes of an economic revival. The scale of the rate adjustment was larger than expected, and suggests China is serious in its efforts to support the struggling housing sector. Sentiment toward China received an additional boost from President Biden’s suggestions that the US may lift some of the Trump-era tariffs. The noises in that regard have been getting louder in the past few weeks, but the decision itself is not an easy one considering the geopolitical landscape in Asia and doubts about benefits to Americans from such a change. This week we’ll focus primarily on news from China’s Covid front as well as any headlines from president Biden’s trip to Asia, a first since he took office. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM To stay up to date with our publications, please choose one of the below: 📩 Click here to receive the latest market updates👉 Our LinkedIn page for the latest newsâœÂï¸Â Our Blog page for other FX market reports 🔊 Stay up to date with our podcast FXTalk
Economic Calendar For July 21st. EUR/USD And GBP/USD - Trading Ideas

What's Going To Affect EUR, USD And CHF? Ebury Weekly Analysis: Euro (EUR), US Dollar (USD), Swiss Franc (CHF)

Matthew Ryan Matthew Ryan 23.05.2022 15:18
EUR The retreat of the ECB doves in the face of inflationary reality accelerated last week, as the hawkish Dutch member of the council suggested that not only is a July hike a near certainty, but a 50 bp hike could be on the cards. This is happening at the same time US short term rates are having trouble pushing higher, partially because so much is priced in on the part of the Federal Reserve. As a result, interest rate differentials across the Atlantic have shrunk and are no higher now than in March. This trend should be supportive for the euro and we may have already seen the bottom. This week’s PMIs should be strong and partially assuage recession fears in the US, enabling the ECB to continue its policy turnaround and focus squarely on containing inflation. Learn more on Ebury USD Strong retail sales last week confirmed that so far there is little sign that higher prices are doing much to deter the US consumer. However, it is a volatile indicator and one cannot extract a lot of information from a single print. US yields fell in sympathy with stocks, and for now the US dollar seems to have recoupled to rate differentials with the rest of the world, so it fell as well. On tap for this week is the publication of the minutes for the last meeting of the Federal Reserve, which we expect to reiterate that the next two hikes are likely to be “doubles”, i.e., 50 bp. However, all of this is already priced in by markets, and it will be difficult for US short term rates to price in any more. We think the dollar is vulnerable to a sustained pullback here. Read next: Altcoins: Cardano (ADA) What Is It? - A Deeper Look Into Cardano (ADA) | FXMAG.COM CHF The Swiss franc outperformed all other G10 currencies by a significant margin last week, rallying by close to 3% against the US dollar on growing speculation about monetary policy tightening in Switzerland. SNB president Jordan suggested on Wednesday that the bank was ready to act should an inflation threat materialise. Investors might have been further encouraged to bet on a shift in the SNB’s approach by a hawkish ECB, which looks ready to kick-start its rate hike cycle in July. We think that the market is perhaps a bit too aggressive, and think that the SNB would likely prefer to increase currency interventions in the near-term, before thinking about rate increases. While interventions have been relatively limited, suggesting a degree of acceptance of the currency’s strength in light of elevated inflation, the bank still seems determined to not allow the franc to appreciate too much. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM We believe the scale of the franc’s recent rally has been excessive and think it may give up some of its gains, particularly if global sentiment improves. That will be the focus for the franc this week, namely the PMI prints from the main economies, news from China, and behaviour of global equity and bond markets. Follow FXMAG.COM on Google News
Supply Trends Resurface: Analyzing the Impact on Market Dynamics

Will Pound (GBP) Strengthen? Ebury Weekly Analysis: British Pound (GBP) | Ebury

Matthew Ryan Matthew Ryan 23.05.2022 15:16
Last week saw some strange market action. Financial headlines were dominated by the relentless sell-off in world equity markets that left the S&P 500 index flirting with the semi-official bear market line of 20% below its record high. Among G10 currencies, the Swiss franc notched a rare win as the flight to safety bid combined with a hawkish central bank to send it soaring by over 2% against the US dollar. More surprising was the general weakness in the US dollar, which failed to benefit from its safe-haven role. In fact, the winners of the week were Latin American currencies, which is particularly impressive in the current risk averse environment. As long standing LatAm bulls, we are not complaining, however.  Learn more on Ebury This week the focus will be on any spillovers from the volatility in stock markets to the FX market, on one hand, and the PMIs of business activity on the other. The Eurozone and UK indices are all expected to print well above 55.nWe think that these levels belie the fears of recession that appear to be gripping asset markets. It is difficult to reconcile still massively negative real rates, huge government deficits and economies at full employment with any sustained economic pullback. Figure 1: G10 FX Performance Tracker [base: USD] (1 week) Source: Refinitiv Datastream Date: 23/05/2022 British Pound (GBP) Data out of the UK continued to suggest a dichotomy between sentiment and reality. Consumer sentiment was dismal, but jobs data came out very strong, as did retail sales. Inflation in April was sky high, as expected. Sterling bounced back in line with the general dollar selloff and managed some gains against the euro as well. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM We think there is little to suggest a recession is likely, and this week’s PMI data should be further evidence. It seems that the Bank of England’s apparent willingness to tolerate inflation due to the risks to growth is misplaced. In the short-term, Bank of England dovishness may weigh on the pound, but after the recent sell-off we think that the currency is quite cheap and offers a solid opportunity over the longer term. Figure 2: UK Inflation Rate (2017 – 2022) Source: Refinitiv Datastream Date: 23/05/2022

currency calculator