Global overview
New evidence of a moderating global economy added traction to the dollar’s upswing, pushing the U.S. unit to fresh multimonth peaks. The greenback bounced to two-month highs against the euro and Canadian dollar, while the UK pound hit a one-week bottom. Downbeat data from Europe weighed on area currencies and highlighted underperformance versus the surprisingly durable U.S. economy. Gauges of business activity in the euro zone and Britain fell to the lowest level in years. The breadth of the weakness suggested less scope for central banks across the Atlantic to lift borrowing rates as they continue to confront elevated inflation. The global economy’s fragile backbone raises the stakes for the week’s main event: The Fed’s Jackson Hole, Wyo. summer conference of central bankers from around the world that features speeches from the heads of the U.S. and euro zone central banks. The U.S. economy’s surprisingly solid momentum has markets pondering whether Fed Chair Jerome Powell may use his Friday morning speech at 10 ET to reiterate that interest rates are likely to remain high for longer. European Central Bank President Christine Lagarde will also speak Friday.
Poor data hints at ECB rate pause
The euro suffered a black eye Wednesday after domestic data painted a weaker picture of growth across the bloc. The euro sank to two-month lows after data offered evidence of weakness in the manufacturing sector bleeding over and damaging the dominant service sector. The euro zone’s composite PMI, a hybrid index of both factory and service activity, fell more than expected to 47.0 in August, the lowest level in nearly 3 years, from 48.6 in July. The downbeat data made an ECB rate hike from 3.75% in September less likely, weighing on the euro.
Sterling falls toward late June bottom
The British pound tumbled to an Aug 14 low against the U.S. dollar, which was the day it hit a late June bottom of 1.2614, after surveys of UK manufacturing and service activity both contracted in August. The downside misses to the data offered evidence of the Bank of England’s 14 straight rate hikes since December 2021 taking a meaningful toll on the economy. As a result, markets are rethinking the outlook for British borrowing rates whose peak level may stop short of recent estimates of 6%.
C$ slips to 11-week low
Global weakness and lower crude oil prices below $80 pushed the Canadian dollar into shallow negative territory for the year against its U.S. rival. The decline knocked the loonie to a June 1 bottom, its lowest level in 11 weeks. The weaker loonie now looks to a reading today on the Canadian consumer. Retail sales are forecast to stall with an unchanged reading in June. The data, if soft, would cement expectations for Ottawa to pause rate hikes from 5% when policymakers next meet on Sept 6.
Dollar strengthened by global economic weakness
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.
