SMATS FX is proud to provide our weekly analysis of currency markets and exchange rates.
GBP
- The Pound held up relatively well in the markets last week, gaining on most major currencies except for the US dollar and Japanese Yen. The wave of US dollar strength, following the FOMC meeting and upwards revision in inflation, has seen investors lean towards safer assets. GBP/USD fell by 2.11%, from an open of 1.4120 on Monday, as US bond yields spiked mid-week and the dollar moved forward. The GBP/USD pair closed off the week's trade around the 1.38 support level.
- Unemployment in the U.K fell to 4.7% during May, as the Claimant Count fell by 92 600 claims, while Retail Sales climbed by 24.6% year-on-year. Inflation also came in hotter, with Core Inflation exceeding expectations and coming in at 2.1% for May (YoY).
- This week, The Bank of England will release their interest rate decision for the month, which is expected to remain at the ultra-low level of 0.1%. GFK Consumer Confidence for June will also be in and is expected to rise marginally to -7.
USD
- After months of decline, Dollar strength finally returns to the market. Last week we saw the USD strengthen between 2.1 and 4.6% against the G10 currencies.
- This USD strength came after the fed signaled a future tapering of bond purchases and an affirmation of rate hikes in 2023. This rhetoric came after further increased inflation in the US raised fears of runaway inflation, which coupled with low job growth, would be detrimental to the US economy.
- Overall, not the most eventful week on the data front, but following the strong move in the USD over the past week, the possibility of increased volatility with USD paired rates is not unimaginable.
- In the coming week, we have US growth data, which is expected to remain stable at 6.4%.
EUR
- The week saw the EUR start on a strong note, opening at 0.857 and breaking the 0.859 mark before retracing back to the 0.857 level. The currency remained within the range of 0.857 and 0.862 until Wednesday when we saw it lose significant ground against most majors. This is evident in the fall to 0.854. the EUR started to pull back from its losses on Friday as it traded above 0.856 on the day.
- The main data points released this week were the industrial production, on Monday, and the Balance of Trade data on Tuesday. The industrial and balance of trade data continued to illustrate the trend of a growing economy observed in the previous two weeks. This kept the EUR on a strong footing as ECB officials reiterated their commitment to the PEPP indicating that it is still too soon to talk about planning for an end to stimulus plans. We then saw a stronger USD and the EUR lost some upward momentum against most majors as it is believed that the ECB may need to follow suit in the coming months.
- ECB rhetoric continues to be pro-PEPP and other stimulus plans such as the SURE (support to mitigate Unemployment Risk in an Emergency). ECB officials have also confirmed their belief that current inflation levels are transitory, however, this has not assuaged investor fears of potential runaway inflation in the future. Investors also expect the ECB to provide a deadline to increasing rates, in order to address these fears.
AUD
- The Aussie dollar experienced some headwinds in the markets last week, driven by global inflation jitters and the potential for higher interest rates. The GBP/AUD trended upwards throughout this last week of trade, as risk-off sentiment led investors towards safer assets and more developed markets. After opening at 1.8325, the GBP/AUD pair rose and touched 1.850 before settling around 1.8465 and closing the week up by 0.90%.
- Last week, Australia recorded an Unemployment Rate of 5.1% (May), which declined from 5.5% last month despite no significant change anticipated. Part-time employment rose by 17 700 jobs, while the country also added 97 500 full-time jobs
- This week, Retail sales in Australia for May will be released and is expected to expand by around 0.5% after April's reading of 1.1%. Service PMI and Manufacturing PMI are also due and will provide additional information on the state of recovery of the Australian economy.
NZD
- Last week Wednesday saw the release of the current account data, pertaining to the first quarter of 2021. The current account deficit grew to negative NZ$2.895 billion which is well below the negative NZ$2 billion forecast.
- On Thursday, the GDP data for the first quarter was released. The GDP grew by 1.6% compared to the previous quarter and 2.4% compared to the first quarter of 2020.
- The Westpac Consumer Confidence for the second quarter is set to be released tonight and is expected to beat the last quarters' score of 105.2.
- Later this week we can expect the balance of trade for May to be released. The trade surplus is forecast to widen to NZ$500M.
ZAR
- Over the past 5 days, we have seen ZAR weakness come to fruition against the top 20 currencies.
- Although this was expected, after such a long run of strengthening, catalysts for this included the Fed meeting last Wednesday where they discussed a stricter monetary policy to combat rising inflation. In addition to this South Africa was put back on level 3 lockdown to try to stunt a rising third wave of Covid infections.
- Coming up this week we have SA inflation data, which is expected to increase to 5%, the upper edge of the 3-6% band.
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