Important calendar events
The dollar was volatile last week, with the dollar index dropping from 104.5 to 103.0 mid-week but rallying towards the end of the week and closing near 104.3. US Treasury yields also displayed some volatility, with the US 10-year bond dropping from the 4.25% level to 4.09% before climbing back to 4.18% on Friday. Increased expectations that the Fed will stop raising interest rates boosted the dollar towards the end of last week.
Upbeat US jobs data boosted the dollar last week. Unemployment claims dropped to 228K from 232K last week. Non-farm payrolls rose to 187K in July, exceeding expectations of only 170K and surpassing July’s job openings of 157K. Average hourly earnings rose by 0.2% monthly though, falling short of expectations of a 0.3% raise.
The U.S. Federal Reserve raised interest rates by 25 basis points in July to a target range of 5.25% to 5.50%, the highest level in 22 years.
Federal Reserve Chair Jerome Powell, recently speaking at the Jackson Hole Symposium in the US, warned that the Fed is prepared to raise interest rates further to bring inflation down. The Fed’s aggressively hawkish policy over the past year has been paying off and inflationary pressures in the US are easing. Most investors are anticipating a pause in rate hikes, but the US central bank has signaled that further tightening is possible if inflation does not go down consistently.
Headline inflation rose to 3.2% in July from 3.0% in June, versus the 3.3% forecast, indicating that inflationary pressures are not decreasing consistently. US monthly CPI and Core CPI, which excludes food and energy, both rose by 0.2% in July. PPI, and Core PPI, also increased more than expected in July, both rising by 0.3%, against estimates of a 0.2% growth.
Core PCE Price Index, which is the Fed’s preferred inflation gauge, fell within market expectations last week. Core PCE remained high, rising by 0.2% monthly in July, bringing the annual rate to 4.2%.
Prolonged economic tightening has put considerable strain on the US economy. Preliminary GDP for the second quarter of 2023 showed that the US economy expanded by only 2.1% against expectations of 2.4% growth. The preliminary GDP price index for the 2nd quarter of the year also came in below expectations at 2.0% versus 2.2% anticipated.
Economic activity indicators due this week for the US include ISM Services PMI data on the 6th and Unemployment Claims on the 7th. More importantly, several FOMC members are due to deliver speeches throughout the week, which may affect the dollar. Market participants are expected to follow FOMC members’ addresses closely for hints into the Fed’s future policy direction.
EUR/USD was volatile last week, mainly due to the dollar’s volatility. The currency pair rose to the 1.094 level mid-week but plummeted towards the end of the week closing near 1.077 on Friday. If the EUR/USD pair declines, it may find support at 1.066, while resistance may be encountered near 1.127.
Preliminary GDP data for the second quarter of the year showed that the Eurozone economy expanded by 0.3%, exceeding expectations of 0.2% growth, after contracting by 0.1% in Q1 of 2023.
Flash CPI data for August showed that Euro Area headline inflation remained unchanged at 5.3% year-on-year against expectations of a drop to 5.1%. Core CPI, which excludes food and energy, however, dropped to 5.3% from 5.5% in July. Inflationary pressures in the Eurozone remain high, increasing the likelihood that the ECB will continue its policy of monetary tightening.
The ECB raised interest rates by 25 bp at its July policy meeting, bringing its primary refinancing rate to 4.25%. The ECB’s forward guidance was not as decisively hawkish as anticipated, though. The central bank hinted that future rate decisions will be data-based.
ECB President Christine Lagarde speaking at the recent Jackson Hole Symposium in the US, stressed that the Central Bank’s focus remains on attaining the 2% inflation target. Lagarde’s stance was decidedly hawkish, emphasizing that the ECB’s priority remains to keep inflation constrained. Lagarde stated that interest rates will remain high as long as necessary to bring inflation back down to the ECB’s target.
Lagarde is due to deliver a speech this week on the 4th at the British Retail Consortium. Traders will scan Lagarde’s address to gain insight into the ECB’s future policy.
GBP/USD exhibited high volatility last week. The currency pair climbed to 1.272 mid-week as the dollar weakened but dropped back to 1.258 on Friday as the dollar rallied. If the GBP/USD rate goes up, it may encounter resistance near 1.299, while support may be found near 1.254.
The BOE raised interest rates by 25 basis points at its latest policy meeting, bringing the bank rate to a 15-year high of 5.25%. The BOE had raised interest rates by 50-basis points at its June meeting though, and market odds were split between a 25-bp and a 50-bp rate hike.
High inflation in the UK is putting pressure on BOE policymakers to increase interest rates. Inflation in the UK is showing signs of cooling, demonstrating the effectiveness of the BOE’s consistently hawkish policy. Headline inflation dropped to 6.8% year-on-year in July from 7.9% in June. Core CPI, which excludes food and energy, remained steady at 6.9% though. Even though inflationary pressures in the UK are easing, inflation is still high, and policymakers may continue to raise interest rates to bring it down.
BOE Governor Andrew Bailey has stressed that interest rates will likely stay higher for longer than previously thought to bring down inflation. Speaking at the annual Jackson Hole Economic Policy Symposium in the US, BOE Deputy Governor Ben Broadbent also stressed that monetary policy may have to remain in restrictive territory for some time yet.
Britain’s economy unexpectedly expanded by 0.5% month-on-month in June after contracting by 0.1% in May, beating estimates of a 0.2% growth. Preliminary GDP estimates for the second quarter of the year were also optimistic, predicting a 0.2% growth from just 0.1% in the first quarter of 2023. The state of the British economy is still precarious though, as prolonged tightening has taken its toll on the labor market and other vital economic sectors.
USD/JPY was volatile last week, fluctuating between 147.3 and 144.4 before closing near 146.2 on Friday. If the USD/JPY pair declines, it may find support near 144.4. If the pair climbs, it may find resistance at 147.3.
The BOJ recently showed signs of relaxing its ultra-easy policy. The central bank maintained its short-term interest rate target steady at -0.10% at its latest policy meeting in July. The BOJ, however, has loosened its yield curve control. This will maintain the rate ceiling but effectively allow rates to float beyond the cap, allowing for rises by a further 50 basis points.
National Core CPI dropped to 3.1% in July from 3.3% in June. Inflation in Japan has remained above the BOJ’s 2% target for more than a year, encouraging the BOJ to tighten its monetary policy. BOJ Core CPI dropped slightly to 3.0% in July from 3.1% in June.
BOJ Governor Kazuo Ueda, speaking at the Jackson Hole symposium in the US defended the BOJ’s ultra-easy policy. Ueda stressed that underlying inflation in Japan remains below the BOJ’s target, indicating that a pivot in the central bank’s policy direction is not on the cards just yet.
Final GDP data for the first quarter of the year showed that the Japanese economy expanded by 0.7%, against a preliminary GDP print of 0.4%. The GDP data exceeded expectations, alleviating recession concerns for Japan. Final GDP Price Index showed a 2.0% annual expansion, versus 1.2% the previous quarter. Japan’s economic recovery increases the odds of a hawkish pivot in BOJ’s monetary policy.
Gold prices extended gains last week, benefiting from the dollar’s decline. Gold touched the $1,955 per ounce level but pared some gains on Friday as the dollar rallied, dropping back to $1,940 per ounce. If gold prices increase, resistance may be encountered near $1,982 per ounce, while if gold prices decline, support may be found near $1,885 per ounce.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. Increased expectations that the Fed will stop raising interest rates boosted the dollar towards the end of last week, driving gold prices down.
The dollar was volatile last week, with the dollar index dropping from 104.5 to 103.0 mid-week but rallying towards the end of the week and closing near 104.3. US Treasury yields also displayed some volatility, with the US 10-year bond dropping from the 4.25% level to 4.09% before climbing back to 4.18% on Friday.
Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. The U.S. Federal Reserve raised interest rates by 25 basis points in July to a target range of 5.25% to 5.50%, the highest level in 22 years.
Federal Reserve Chair Jerome Powell, recently speaking at the Jackson Hole Symposium in the US, warned that the Fed is prepared to raise interest rates further to bring inflation down. Most investors are anticipating a pause in rate hikes, but the US central bank has signaled that further tightening is possible if inflation does not go down consistently.
The Fed’s aggressively hawkish policy over the past year has been paying off and inflationary pressures in the US are easing. Cooling US inflation rates have shifted market expectations towards a less hawkish direction. Markets now see the Fed peak rate approaching, boosting gold prices.
Oil prices soared last week buoyed by supply concerns, with WTI price climbing above the $86 per barrel level. If WTI price declines, it may encounter support near $77.8 per barrel, while resistance may be found near $90.0 per barrel.
Supply concerns have been driving oil prices up. The OPEC+ alliance has been limiting oil production to keep oil prices up. Saudi Arabia is expected to extend the output cut of 1 million barrels per day into October, increasing supply concerns.
Oil prices rose to their highest level in over seven months boosted by tightening supply. Reports that Russia would proceed with new supply cuts sent oil prices skyrocketing last week. Russia is expected to announce new production and output cuts in a deal with its OPEC+ partners this week.
US Crude oil inventories dropped sharply last week providing support for oil prices. The US Energy Information Agency reported a drop of 10.6M barrels, exceeding expectations of a 2.2M barrel drop.
Deterioration in China’s economic outlook is keeping oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and a weaker Chinese oil demand outlook has put pressure on oil prices. Recent data showed that China imported less oil in July, driving the oil demand outlook down.
The Fed’s hawkish monetary policy has reduced oil demand outlook, putting pressure on oil prices. The U.S. Federal Reserve raised interest rates by 25 basis points in July to a target range of 5.25% to 5.50%, the highest level in 22 years.
Federal Reserve Chair Jerome Powell, recently speaking at the Jackson Hole Symposium in the US, warned that the Fed is prepared to raise interest rates further to bring inflation down. Most investors are anticipating a pause in rate hikes, but the US central bank has signaled that further tightening is possible if inflation does not go down consistently. The prospect of an end to rate hikes increases the oil demand outlook, boosting oil prices.
Bulls and bears have been fighting to gain market control throughout the week, creating instability in the market. Crypto markets edged higher towards the beginning of last week but failed to maintain an uptrend and plummeted shortly after.
Crypto bulls prevailed at the beginning of the week, pushing Bitcoin price to $28,000. Bitcoin pared gains mid-week though, dropping sharply to $25,300. Bitcoin price steadied at the $26,000 level over the weekend. If the BTC price declines, support can be found near $25,30, while resistance may be encountered near $30,200.
Ethereum price also oscillated wildly last week, skyrocketing to the $1,740 level early in the week, then plunging to $1,600 mid-week and steadying near $1,640 over the weekend. If Ethereum's price declines, it may encounter support near $1,600, while if it increases, resistance may be located near $1,880.
Crypto markets were volatile last week due to developments on the highly anticipated Bitcoin spot exchange-traded fund (ETF) applications. Bitcoin spot ETFs would provide investors with more straightforward access to the asset and direct exposure to changes in the cash market. The Securities and Exchange Commission (SEC), however, has rejected Grayscale’s proposal to convert its Grayscale Bitcoin Trust into a spot Bitcoin ETF.
On Tuesday, the US Court of Appeal ruled that the regulator’s decision was arbitrary, reigniting hope that the decision would soon be overturned. SEC, however, announced on Thursday a delay in making any decisions on the issue until October, driving cryptocurrencies down.
Increases in central banks’ interest rates sour risk sentiment, driving risk assets down. The U.S. Federal Reserve raised interest rates by 25 basis points in July to a target range of 5.25% to 5.50%, the highest level in 22 years.
Federal Reserve Chair Jerome Powell, recently speaking at the Jackson Hole Symposium in the US, warned that the Fed is prepared to raise interest rates further to bring inflation down. Most investors are anticipating a pause in rate hikes, but the US central bank has signaled that further tightening is possible if inflation does not go down consistently.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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