In terms of currency strength, the U.S. dollar powered higher as traders took off risk aggressively, thanks to fresh interest rate hikes from all around the world and rising odds of global recession ahead.
Notable News & Economic Updates:
On Monday, U.S. President Biden said U.S. forces would defend Taiwan in the event of a Chinese invasion
OPEC+ reported on Tuesday that it is now 3.6M bpd below its oil production target
Nasdaq starts crypto custody service for institutional clients
Russian President Vladimir Putin ordered the mobilization of as many as 300,000 reservists and renews nuclear threats
The Asian Development Bank growth outlook for emerging Asian economies: 4.3% in 2022 and 4.9% in 2023; expects China to gorw 3.3% in 2022
U.S. Energy Information Administration reported a crude oil inventory build of 1.1 million barrels for the week to September 16.
Several central banks raised interest rates this week, including the Federal Reserve, Bank of England, and the Swiss National Bank
Bank of Indonesia hiked interest rates by 50 bps to 4.25%; they expect the inflation rate to pass 6% this year
Sweden lifted interest rates by full percentage point to 1.75%, and signaled that it’s likely more hikes may come
U.K. Chancellor of the Exchequer Kwasi Kwarteng announced on Friday a new growth plan for the U.K.; a package of tax cuts that includes a basic income tax cut to 19% in 2023
Intermarket Weekly Recap
Dollar, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay 1-Hour
It was an extremely busy week for currency traders as several central banks not only hiked interest rates, but generally kept rhetoric aggressive on their intent on pulling in inflation.
This of course has traders pricing in the idea that high-interest rates will also slow down the global economy (apparently the only way central banks can pull back inflation rates), which essentially has been a move away from risk assets and a move away from bonds.
This sparked another massive rally in the U.S. dollar and bond yields, so strong that even gold wasn’t spared from U.S. dollar strength, highlighting the extreme sentiment favoring the U.S. dollar over pretty much every other asset at the moment.
The economic calendar was pretty busy as well to keep traders on their toes, with business sentiment survey data likely the biggest driver in the bunch.
Overall, the survey data was no help to risk-on traders either, most notably with the latest flash PMIs released on Friday showing contractionary sentiment by businesses, especially in the euro area, fueling the impending global recession thesis.
As expected with so much action from the major central banks and global recession odds rapidly rising, the forex space was extremely busy. The yen first dropped on another hold decision from the Bank of Japan before popping on currency intervention headlines.
The U.S. dollar took charge once again on safe-haven flows, and after Fed Chair Powell basically confirmed that they will stay vigilant on inflation and that a recession is likely on the way.
And we got one final big move in FX before the weekend as Sterling dropped hard on Friday after the U.K. released another stimulus plan. It was a surprise as the tax cuts to support the economy were bigger-than-expected, which also, unfortunately, fueled inflation concerns.
This was a big move to the downside against all majors that eventually made the British pound the biggest loser of the week.
USD Pairs
Overlay of USD Pairs: 1-Hour Forex Chart
The NAHB/Wells Fargo index fell three points to 46 on Monday. Homebuilder sentiment has declined every month this year, the longest run of declines since 1985
After falling by 10.9 percent to a revised annual rate of 1.404 million in July, U.S. home starts jumped by 12.2 percent to 1.575 million in August.
In August, existing home sales in the United States fell for the seventh consecutive month by -0.4% m/m. Affordability continued to fall due to rising mortgage rates and persistently high home prices (median home prices rose +7.7% y/y)
On Wednesday, the Federal Reserve raised its interest rates by 75 bps to target the 3% – 3.25% range, the highest since early 2008.
The new Fed dot plot suggests another 125 bps increase until the end of 2022, suggesting a “terminal rate” of 4.6% and no rate cuts in 2023
U.S. leading economic index in August: -0.3% m/m vs. -0.5% m/m in July
U.S weekly initial jobless claims rose to 213K in the week ending Sept. 17; continuing claims dropped to 1.38M in the week ending Sept. 10, a historical low
Flash U.S. Manufacturing PMI for September: 51.8 vs. 51.5 previous; Services Index rose to 49.2 vs. 43.7 in August
GBP Pairs
Overlay of GBP Pairs: 1-Hour Forex Chart
The UK public sector’s net borrowing in August was £11.8B ($13.4B), which is £5.8B more than the Office for Budget Responsibility (OBR) had anticipated in March, according to data from the Office for National Statistics (ONS).
On Thursday, the Bank of England decided to hike its base rate from 1.75% to 2.25%, which was less than the 75 bps increase that many traders had anticipated.
U.K. GfK consumer confidence index down from -44 to -49 vs. -42 forecast
Flash U.K. Manufacturing PMI for September: 48.5 vs. 47.3 in August; Services PMI: 49.2 vs. 50.9 previous
U.K. bond prices and the Sterling fell on Friday after the government ramped up stimulus measures more than expected, creating more inflation fears and debt worries
EUR Pairs
Overlay of EUR Pairs: 1-Hour Forex Chart
In their latest monthly report, Bundesbank says there are mounting signs of recession in Germany
Sweden lifted interest rates by a full percentage point to 1.75%, and likely more to come
Eurozone consumer confidence index sank from -25 to -29 vs. -26 forecast
Flash Eurozone Manufacturing PMI for September: 48.5 vs. 49.6 in August; Services PMI at 48.9 vs. 49.8 previous
Flash Germany Manufacturing PMI for September: 48.3 vs. 49.1 previous
According to four individuals who spoke to Reuters, the European Central Bank is looking into methods to reduce a bank subsidy that would cost it tens of billions of euros in interest.
CHF Pairs
Overlay of CHF Pairs: 1-Hour Forex Chart
The Swiss National Bank hiked its interest rate by 75 bps to 0.50%, bringing it back above zero for the first time in eight years
Despite Switzerland’s relatively low price increases when compared to worldwide peers, the Swiss National Bank is prepared to take more efforts to combat inflation, SNB Chairman Thomas Jordan stated on Friday.
CAD Pairs
Overlay of CAD Pairs: 1-Hour Forex Chart
Canada’s Industrial PPI fell 1.2% m/m but rose 10.6% annually. The Raw Materials Price Index (RMPI) declined 4.2% m/m in August but rose 17.6% year-over-year.
According to Statistics Canada, the Canadian consumer price index increased 7% y/y, down from 7.6% y/y in July and a four-decade high of 8.1% y/y in June. Prices dropped 0.3% m/m in August, which was the biggest monthly drop since the early Covid-19 epidemic months.
Statistics Canada reported that Canadian retail sales came in at $61.3B in July (-2.5% m/m).
NZD Pairs
Overlay of NZD Pairs: 1-Hour Forex Chart
New Zealand BusinessNZ services index climbed from 54.4 to 58.6
New Zealand dairy prices rose 2.0% in latest GDT auction
New Zealand credit card spending surged 29.4% y/y in Aug
NZ consumer confidence picked up from 78.70 to 87.60 in Q3 2022
New Zealand’s trade deficit increased from 2.1B NZD to 2.4B NZD in August
AUD Pairs
Overlay of AUD Pairs: 1-Hour Forex Chart
Australia’s MI leading index down by -0.1% to 97.65 in August
Reserve Bank of Australia Deputy Governor Michele Bullock commented on Tuesday’s report that the Reserve Bank of Australia recorded a “substantial” loss in that latest fiscal year and is in negative equity; this situation is not likely to affect the RBA’s ability to do its job. And also said that the policy rate is not yet restrictive
JPY Pairs
Overlay of Inverted JPY Pairs: 1-Hour Forex Chart
Japan’s annual inflation hits near an 8-year high of 3.0% in August
The Bank of Japan conducted an unscheduled bond-buying operation of 10 to 25-year JGBs on Wednesday
Japan intervened in the Japanese yen (the first time since 1998) to slow its plunge; there were no details shared on the intervention (e.g., how much and if there was G7 consent)
The Bank of Japan left its interest rate policy unchanged on Thursday as expected, keeping the short-term rate target at -0.1%
Beginning on October 11, Japan will relax entry restrictions for foreign tourists from the current daily cap of 50K visitors