Global overview
Risk sentiment brightened and the greenback dimmed ahead of an important reading today on the world’s largest economy. The mostly weaker U.S. dollar slipped against the euro, sterling, and Canadian dollar ahead of America’s monthly snapshot of consumer inflation. Consumer prices are forecast to rise at a 3.3% annual rate in July from 3% in June. Less volatile core inflation that the Fed sees as the better signal of underlying price trends is expected to steady at an elevated 4.8%. The dollar has softened on the view if that if inflation behaved largely as expected last month, it’s likely to maintain a high bar for the Fed to raise rates next month. The overall market reaction could be fleeting and muted given that U.S. central bankers will have another jobs and inflation report to consider before its next meets on Sept 19-20. The dollar would be vulnerable should inflation come in lower than expected as it would support market bets that the Fed’s 11th rate hike in July may have been its last for a while. A solid upside surprise, on the other hand, could boost the dollar as it would suggest it may be premature yet to call an end to Fed tightening.
Euro turns higher
The euro turned higher and positive for the week against the U.S. dollar ahead of America’s snapshot of July consumer inflation. One of the euro’s biggest sources of support this year has been the notion that the Fed is at or near the end of its most aggressive tightening cycle in decades to quash inflation. Still, bouts of euro strength have been undercut by the bloc’s lackluster recovery from the pandemic, particularly with the German economy mired in a technical recession. EUR/USD ended last week at 1.1010.
Sterling climbs out of weekly hole
Above last week’s close around 1.2750, the UK pound climbed into positive territory for the week as the greenback softened and risk appetite improved ahead of America’s inflation report. Like the euro, bouts of sterling outperformance have been hampered by tepid domestic economic fundamentals that, while resilient, are at risk of losing momentum as the Bank of England continues to raise borrowing rates to stifle the highest inflation among the major economies. For a better gauge of underlying sterling sentiment, the market is looking ahead to UK numbers next week on unemployment (Aug 15) and inflation (Aug 16).
C$ rebounds as U.S. inflation falls short of forecast
The Canadian dollar edged below 1.34 against the U.S. dollar from a two-month low earlier this week at 1.35, thanks in part to oil climbing to 2023 above $84. The loonie’s advance may have legs after U.S. inflation rose less than expected last month, bolstering the case for the Fed to pause and perhaps halt rate hikes. Headline consumer inflation rose at a 3.2% annual rate in July, below forecasts of 3.3% from 3% in June. Core inflation unexpectedly cooled a tick to 4.7% from 4.8% where is was expected to remain. The smaller than expected rise in headline inflation, coupled with cooler core inflation, keeps the disinflationary trend intact, a theme that’s weighed on the dollar by suggesting U.S. rates may have already peaked.
Buck squanders weekly gain
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Aug 7-11
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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.
