CAPITALDIGEST, MARKET REVIEW, 19/9/2022

STERLING GAINS AGAINST THE DOLLAR AS UK INFLATION FALLS Sterling gained against the dollar on Wednesday as the greenback moving broadly lower and British inflation unexpectedly eased for the first time in a year. The pound rose 0.5% to $1.1546, pulling away from its three-decade low of $1.14070 hit last week. Against the euro, it rose 0.2% to 86.59 pence. The dollar fell after the Japanese yen rose on reports that the Bank of Japan conducted a rate check, in apparent preparation for currency intervention. Policymakers in Tokyo also stepped up warnings about recent sharp falls, though most analysts doubted there would be any direct yen-buying move soon. DOLLAR STEADY WITH FED IN FOCUS, SWISSIE STRONGEST VS EURO SINCE JAN 2015 The dollar held near recent peaks on Thursday, supported by the view that the Federal Reserve will keep tightening policy aggressively, while the Swiss franc hits its strongest against the euro since the Swiss National Bank removed its floor under the currency in 2015.The franc rose 0.5% against the euro , to as high as 0.9529 francs, its strongest level against the single currency since Jan. 15 2015, the day the SNB scrapped its minimum exchange rate of 1.20 francs per euro. STERLING HOLDS STEADY VS DOLLAR NEAR 35-YEAR LOW Sterling was little changed against the dollar and the euro on Thursday, hovering above a 35-year low touched last week against the greenback as investors fret about the economic outlook and continue to favour the U.S. currency. Sterling has been one of the worst performing major currencies in 2022, hit by expectations of a long recession, stubbornly high inflation and political instability. New Prime Minister Liz Truss’s plans to fund a mammoth energy support package by increasing borrowing have added to investor concerns about the long-term outlook for the British economy. POUND FALLS TO 37-YEAR LOW AS POOR RETAIL SALES LIFT ECONOMIC WOES The pound on Friday tumbled to a fresh 37-year low on the U.S. dollar, and a 17-month trough on the euro, after weaker-than-expected figures of retail sales added to worries about the health of Britain’s economy. The pound fell more than 1% against the dollar to 1.1351, its lowest since 1985, its fall accelerating once it passed through the then 37-year low hit last week. The euro rose to as high as 87.66 pence, its highest level since Feb 2021, and was last up 0.39% at 97.52 pence. Retail sales volumes dropped 1.6% in monthly terms in August, the Office for National Statistics said on Friday – the biggest fall since December 2021 and worse than all forecasts in a Reuters poll of economists that had pointed to a 0.5% fall. DOLLAR EDGES DOWN BUT POSTS GAINS FOR WEEK; YUAN SLIPS PAST KEY LEVEL The dollar index was down slightly on Friday but registered a gain for the week as investors expected the U.S. Federal Reserve to remain aggressive when it hikes interest rates next week, while China’s yuan eased past the key threshold of 7 per dollar. The dollar mostly held a slight gain following U.S. data showing consumer sentiment improved moderately in September. The University of Michigan’s preliminary September reading on the overall index on consumer sentiment came in at 59.5, up from 58.6 in the prior month. Economists polled by Reuters had forecast a preliminary reading of 60.0 in September. The dollar, measured against a basket of currencies, declined 0.1% on the day to 109.68. It reached a two-decade high of 110.79 earlier this month. For the week, it was up 0.6%, and it is up about 15% for the year so far. “This belief that we’re very close to a peak dollar, very close to peak yields,… is getting pushed back. We’re seeing a lot of strong bullish dollar calls,” said Edward Moya, senior market analyst at Oanda in New York.