The dollar has slipped from its recent two-decade high of 109.47 on Monday, suggesting the end of the rally sparked by Powell’s hawkish Jackson Hole speech last Friday.
The US economy also recorded a second negative growth print at a marginal -0.6%, technically signalling the economy is in a recession. However, this better-than-expected result was boosted by a report of improved consumer confidence and a slowdown in the fall of house prices. Gasoline prices also fell, encouraging consumers’ morale whilst employment remained well above pre-pandemic levels. These indications suggest the FED is on the right track to continue with its hawkish plan and produce a “soft landing” scenario for the US economy, narrowly missing a full-blown recession.
In Europe, the single currency has been taking a hammering and has sat below parity for nearly 2-weeks. But positive news from developments in the energy sector is starting to lift Euro from its floor. The Union has put forward a plan to intervene in the energy market with price caps across the value chain. Germany declared that its natural gas storage facilities were filling up faster than expected ahead of winter, sitting at roughly 80% capacity.
Markets will be focused on the ECB’s interest rate hike next week, which may see the single currency bounce back above parity for good. A 50bp is expected, but a larger 75bp hike could be on the cards, which would rally the Euro.
In the UK, the pound is trading at a nearly 2.5-year low against the dollar, but this will likely be short-lived once the summer lull is over and a new prime minter is installed this week. The favourite Liz truss is still expected to win by a majority however her economic plans and tax position have come under heavy scrutiny whilst Rishi Sunak’s plans have appeared to persuade the public, but of course, the public has no say in the matter as its an only conservative member who can vote, hurrah for democracy.
What to watch this week:
Wednesday
EUR HICP
USD Employment Change
Thursday
USD ISM Manufacturing PMI
Friday
USD Nonfarm Payrolls(Aug)