Global overview
The U.S. dollar index flirted with one-week lows as risk sentiment turned cautiously higher ahead of big events later in the week. The buck was at or near one-week lows against the euro and sterling while Canada’s dollar was little changed ahead of a midweek update on the country’s consumer. Meanwhile, U.S. Treasury yields continued to climb with the 10-year closing above 4.30% Monday, the highest level since late 2007. What’s pumping up yields is also boosting the dollar: Growing optimism toward the world’s largest economy in the wake of strong data. As a result, markets have scaled back expectations for the Fed to eventually cut lending rates. The rise in yields comes ahead of a highly anticipated speech by Fed Chair Jerome Powell on Friday at the central bank’s Jackson Hole, Wyo. conference where it will play host to central bankers from around the world. Mr. Powell will deliver an update on the U.S. economic outlook that may drop hints on whether the Fed is done raising rates. A message that reinforces an outlook of elevated borrowing rates for some time yet is likely to keep a solid floor under the greenback.
Euro notches 6-day peak
The euro rose as high as 1.0930 against its U.S. rival Tuesday, its strongest level in nearly a week. The euro is catching a breather as the greenback’s burst to six-week highs shows tentative signs of cooling. Yet downside for the dollar may prove limited against a backdrop of rising Treasury yields to 2007 highs that partly reflect growing optimism toward America’s economy. For a better read on underlying euro sentiment, the market will look to preliminary purchasing managers indexes Wednesday on German and euro zone factory growth. Both surveys are expected to remain below 50, terrain that signals economic contraction.
Sterling’s rise undercut by data
The UK pound was little changed after an earlier rise to nearly two-week peaks when it tapped 1.28 against its U.S. peer. A gauge of UK factory growth by the Confederation of British Industry, or CBI, revealed that new orders worsened to minus 15 in August from minus 9 in July which offered more evidence of the highest interest rates in 15 years squeezing the economy. The pound has underperformed the greenback this month, but it has appreciated about 5% year to date thanks to the Bank of England’s aggressive rate hiking campaign to tame inflation.
C$ holds above 2 ½ month low
For a second straight day, the Canadian dollar kept above 2 ½ month lows against its U.S. counterpart as it found traction from cautiously improved risk sentiment that tempered safety demand for its southern rival. While the loonie has largely moved in tandem with risk assets such as equities, data Wednesday will offer more of a fundamental steer. Canadian retail sales are forecast to stall with an unchanged or zero reading for June as elevated inflation and the highest interest rates in 22 years are expected to weigh on consumer spending. Weak data would maintain a high bar for the Bank of Canada to hike rates from 5% on Sept 6.
U.S. dollar index steadies near 2-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.
