Global overview
A buoyant U.S. dollar motored to two-month highs ahead of key speeches today by the head of the Fed and other top central bankers from around the world. Greenback outperformance pushed the euro and sterling to 10-week lows with Canada’s dollar hovering close to a 12-week bottom it hit earlier this week. The dollar index is on track for its sixth straight week of gains, its longest winning streak in more than a year, thanks to rising optimism toward the world’s biggest economy. Admittedly, the highest borrowing rates in decades are taking a bite out of parts of the economy, like manufacturing and housing. Still, the economy has maintained impressive momentum as inflation moderates and the job market remains strong. To be sure, the Atlanta district of the Federal Reserve estimated this week third quarter growth at a sizzling 5.9% pace or more than double the second quarter’s 2.4% rate of expansion. Key for the dollar today will be whether Fed Chair Jerome Powell acknowledges recent economic strength and keeps the door cracked for higher rates. A message from the Fed chief that rate cuts are off the table for the foreseeable future also could be dollar supportive.
Euro falls to 10-week low under 1.08
The euro fell to 10-week lows against the greenback below 1.08 as mixed data from Germany maintained a dark cloud over the bloc’s biggest economy. Official data confirmed that the German economy flatlined in the second quarter with zero growth which was enough to halt a two-quarter downturn. But the outlook remains gloomy as elevated inflation and the highest ECB borrowing rates in decades weigh on growth. A separate survey today showed that Germany’s influential Ifo index of business confidence fell for the fourth straight month. ECB President Christine Lagarde is set to speak today at 3 p.m. ET at the Fed’s Jackson Hole gathering. The euro would be at risk of adding to its losses if Ms. Largarde’s tone is consistent with the ECB pausing rate hikes next month.
Sterling hits 10-week low below 1.26
Sterling was on track for its fifth weekly fall out of the last six weeks as this week’s domestic data shifted the spotlight to fragile UK economic fundamentals. The big blow to sterling arrived with midweek data showing that both the UK manufacturing and services industries contracted in August. The news left sterling vulnerable as it signaled to markets that the Bank of England may have fewer rate hikes on the table than previously thought and interest rates, currently at 5.25%, could top out below recent forecasts of 6%.
C$ treads water; oil tops $80
Canada’s dollar treaded water after sinking earlier this week to a 12-week bottom above 1.36 against its U.S. rival. The loonie has struggled for weeks as worries about global growth overshadowed ongoing evidence of a resilient Canadian economy. Should USD/CAD end the week above 1.3552, it would mark its sixth consecutive week of gains. Canada next week issues second quarter growth on Friday, Sept 1. After the economy grew at a 3.1% annual rate in the first quarter, the Bank of Canada expects its 475 basis points in cumulative rate hikes since last year to slow growth to around 1% over the second half of 2023.
Dollar notches 2 ½ month high
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Aug 21-25
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
