CAPITALDIGEST, MARKET REVIEW. 8TH AUGUST, 2022
MONDAY 01/8/2022-DOLLAR HITS LOWEST SINCE MID-JUNE VS YEN AS INVESTORS REASSESS U.S. RATE HIKE OUTLOOK
The U.S. dollar hit its lowest level since mid-June against the Japanese yen on Monday as investors weighed the likelihood that the Federal Reserve will not raise interest rates as aggressively as some had expected. The U.S. dollar index =USD was volatile after data showed U.S. manufacturing activity slowed less than expected in July. But a key report for investors this week will be the U.S. monthly jobs report on Friday. “It’s the beginning of a new month, and the real focus is on the possibility that the Fed slows down its rate hikes,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. “The big focus is on the jobs data at the end of the week, and that’s likely to confirm that the improvement in the labor market is moderating,” he said. “It’s a weak number, but only given our recent past.”
TUESDAY 02/8/2022 -STERLING LOSES STEAM AS TRADERS TURN TO SAFE-HAVEN CURRENCIES
The British pound weakened against the dollar on Tuesday as traders turned to safe-haven currencies amid rising U.S.-China tensions over Taiwan, with the market also looking ahead to a Bank of England (BoE) policy meeting this week. The pound was down down 0.46% against the dollar at $1.2193 pence at 1421 GMT. Against the euro, the pound reversed course from earlier trading and was up 0.16% at 83.580 pence. The BoE will announce its decision on Thursday, with investors now pricing in an 95% chance of a 50 basis point (bp) hike, a bigger increase than the previous four hikes as the central bank strives to contain soaring inflation without exacerbating an economic slowdown. “Short term, if the BoE opts for a 25bps hike on Thursday I think sterling will lose ground. The market is expecting at least a 50bps hike and Bailey has kind of suggested this will indeed be delivered,” said Stuart Cole, head macro economist at Equiti Capital
WEDNESDAY-03/8/2022-DOLLAR RISES VS YEN; U.S. ECONOMIC DATA, FED OFFICIALS’ COMMENTS SUPPORTIVE
The U.S. dollar was up against the yen on Wednesday after data showed a surprise pickup in the U.S. services industry in July, while hawkish comments from Federal Reserve officials this week also supported the greenback. The Institute for Supply Management said its non-manufacturing PMI rebounded last month from June. The increase ended three straight monthly declines. It also showed supply bottlenecks and price pressures eased, and backed up the view that the economy is not in a recession. Fed officials voiced their determination again on Wednesday to rein in high inflation, although one noted a half-percentage-point hike in the U.S. central bank’s key interest rate next month might be enough to march toward that goal. The greenback rallied on Tuesday after a trio of Fed officials signaled that the central bank remains “completely united” on increasing rates to a level that will put a dent in the highest U.S. inflation since the 1980s. hikes
THURSDAY 04/08/2022-STERLING SLAMMED AS BOE DELIVERS BIG RATE HIKE BUT WARNS OF LONG RECESSION.
Sterling fell on Thursday after the Bank of England raised interest rates by the most in 27 years as it seeks to tame inflation now seen peaking at more than 13% but also warned that a long recession is on its way. The pound fell 0.35% to $1.2105, having traded 0.3% higher at $1.2184 just before the BoE decision was announced. The BoE warned that Britain was facing a recession as it rose its benchmark rate by 50 basis points (bps) to 1.75% in an attempt to curb inflation. Sterling fell 0.6% against the euro to 84.22 pence, after hitting its lowest level in nine days. “The pound is falling despite a 50 bp hike by the BoE. The reaction mostly boils down to the BoE’s pessimistic outlook for the UK economy, with a recession now expected to start in the forth quarter and to extend through next year,” said Francesco Pesole, FX strategist at ING.
FRIDAY 05/8/2022- DOLLAR EDGES HIGHER BEFORE KEY U.S. JOBS REPORT.
The U.S. dollar edged higher on Friday, attempting to recoup some losses after its sharpest daily drop in more than two weeks, as traders turned their attention to U.S. jobs data for further clues about the strength of the economy. The U.S. dollar index =USD, which measures the greenback against a basket of currencies, was up 0.22% to 105.93, after sliding 0.68% on Thursday, the largest fall since July 19. It remains around 3% below its mid-July high. Investors await the U.S. nonfarm payrolls report due at 1230 GMT, which will provide hints of how the U.S. economy is faring. Economists expect an increase of 250,000 jobs for the month of July, after 372,000 were added in June. However, signs of softening in the labour market could already be underway, as data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased last week.