Global overview
Worries about a sputtering global economy helped the U.S. dollar erase the bulk of its jobs-induced swoon from the previous week. Across-the-board gains lifted the dollar toward recent one-month highs, while it advanced to its strongest level in more than two months versus the growth-linked Canadian dollar. Another downbeat round of data from China weighed on global markets which in turn spurred a flight to safety in the greenback. Beijing reported Tuesday that both exports and imports tumbled by double digits in July. China weakness carries global repercussions, given it’s a key destination for many export-driven economies like Europe. The dollar had taken a nosedive Friday after slower than expected American hiring last month bolstered the argument that the Fed may be done hiking interest rates to fight inflation. The outlook for Fed policy remains uncertain, however, and will look for guidance this week from America’s July consumer price index Thursday. Forecasts suggest inflation was steady to higher in July, an outcome that, if realized, would galvanize the dollar positive narrative of U.S. rates staying higher for longer.
Euro whacked by global growth concerns
Worries about European and global growth led the euro to relinquish all the gains that had come on the back of last week’s underwhelming U.S. jobs report. A day after German factory growth plunged in July, trade surveys from China, a key export market for Europe, surprised to the downside for the same month. While EUR/USD has appreciated more than 2% this year, it has struggled to sustain gains, given the gravitational pull of domestic and global weakness that suggests ECB lending rates may be close to peaking.
Risk aversion weighs on sterling
The UK pound slipped to lows for the week against the risk-off energized greenback. Global markets are in flight to safety mode after more downbeat data from China unnerved sentiment. China’s lackluster rebound from the pandemic has dialed up pressure on Beijing to deliver bold stimulus measures to jumpstart growth in the world’s second-largest economy, something Beijing has signaled tepid interest in doing. The pound tends to struggle when risk aversion resurfaces as it overshadows the positive to sterling from the Bank of England’s higher rate outlook.
China weakness sends commodity currencies into tailspin
Canada’s dollar plunged 1% to nine-week lows near 1.35, as it shadowed its commodity cousins from Down Under sharply lower. Commodity currencies tend to be on the front lines when worries about global growth flare, something on display Tuesday following news of weaker than expected trade from China, a key buyer of resource exports from places like Canada and Australia. Chinese exports tumbled 14.5% in July, the third decline in as many months, while imports plunged 12.4%, the most since January. Signs of a slowing Canadian economy, meanwhile, also weighed on the loonie. Canada last week reported that hiring contracted for the second time in three months while unemployment increased for the third month in a row.
Dollar shakes off jobs-inspired weakness
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.
