After a busy week in financial markets, volatility is unlikely to abate quickly. Market participants will continue to digest the latest round of US inflation data with their focus on the upcoming FOMC meetings. The Fed enters its lockup period before the July 25-26 meeting. Inflation data for Japan, New Zealand and the UK will be released next week, along with US June retail sales and Australian employment data.
Here’s what you need to know for next week:
The US dollar, as measured by the DXY, suffered its worst weekly decline since November last year, falling below 100.00, to the lowest since April 2022. The dollar remains vulnerable against a backdrop of risk appetite and lower returns. of the Treasury.
US bonds rallied during the week on signs from the US Consumer Price Index (CPI) and Producer Price Index (PPI) of slowing price pressures. The 10-year yield dipped to 3.80%, after hitting a multi-month high above 4% last week; the 2-year yield ended a five-week bullish streak, falling back to 4.70%%. Wall Street celebrated the latest inflation figures and the fact that the Fed’s next rate hike in July could be its last. US stocks were up more than 2% for the week. Commodities also rose significantly.
Expectations of another Fed rate hike after July have moderated. However, for the September meeting there will be two more reports on inflation, so there is still a long way to go. The most relevant report on the US economic calendar for next week is retail sales for June. Markets will not hear from Federal Reserve officials as they enter the blackout period before the July 27-28 meeting. The debate centers on what the Fed will do after July. At the moment, the Fed has not given clear indications of what its next moves will be.
The EUR/USD pair broke above the 200-week simple moving average (SMA) for the first time in over a year and closed above 1.1800, delivering its best weekly performance since November 2022.
Rabobank analysts:
Signs of disinflation in the US, and a high level of skepticism about the Fed’s ability to raise rates beyond the July meeting, suggest that a soft USD is likely to prevail in the near term. That being said, signs that the ECB rate hike cycle is nearing its peak suggest that EUR/USD could struggle to make further gains beyond the summer season.
GBP/USD also broke above the 200-week SMA and also broke 1.3100. The positive momentum will be challenged next week with key UK data including the June Consumer Price Index (CPI) on Wednesday, with the annual rate expected to decline from 2.1% to 1.9% and figures core holdings at 1.8%. Retail sales for June will be reported later on Friday.
Commerzbank analysts:
Inflation also turned out to be more stubborn than expected in May, prompting the Bank of England to surprise raise its policy rate by 50 basis points. The market is now expecting a much longer rate hike cycle, which should support the pound in the near term. Accordingly, we have adjusted our forecasts. Over the medium term though, we continue to see a weaker pound as the Bank of England is likely to be too hesitant overall.
USD/JPY fell for the second week in a row and found support above 137.00, at the 20-week and 55-week SMA. The Yen rallied strongly against the Dollar, but mixed results against its other rivals as the positive impact of lower yields was offset by risk appetite. The divergence between the Bank of Japan and other central banks is still present, even as the tightening cycle approaches. Japan will publish the Consumer Price Index on Friday, whose annual rate will remain at 0.2% from the previous year.
USD/CAD rebounded strongly on Friday, paring weekly losses and reclaiming the 1.3200 level. The Bank of Canada raised interest rates to 5.0%, their highest level in 11 years. Canada will report inflation data next Tuesday and retail sales on Friday.
AUD/USD broke out of its range, broke above 0.6700 and jumped to test the 0.6900 area and June highs. It maintains a bullish tone. On Tuesday, the Reserve Bank of Australia (RBA) will publish the minutes of its last meeting. Australia will publish employment data on Thursday.
The NZD/USD pair broke out of the 0.6300 resistance zone and briefly reached levels above 0.6400 before pulling back modestly. As expected, the Reserve Bank of New Zealand (RBNZ) kept interest rates unchanged at 5.5%. On Wednesday, New Zealand will release inflation data, with the annual rate expected to slow from 6.7% to 5.9%.
The Chinese Yuan rallied and the USD/CNH pair fell from 7.22 to 7.11. Data continues to point to weak domestic demand. China will report second-quarter GDP on Monday.
Optimism that the Federal Reserve will soon end the tightening cycle boosted higher beta and emerging market currencies. USD/MXN posted its first weekly close below 17.00 since November 2015. The Mexican peso continues to be among the best performing currencies so far in 2023.
Swedish crown and the South African Rand were the best performing currencies during the week. USD/ZAR bottomed at 17.90, the lowest level since April, while USD/SEK fell from 10,800 to 10,180, slightly above year-long lows. The Chilean Peso lagged and failed to rise against the US Dollar.
Buying Silver was the best trade of the week with XAG/USD earning more than 8% during the week. Gold rose from $1,925 to $1,960.
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Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
