The U.S. dollar rose soared across the F.X. board yesterday (closed 0.78% up) and hovered over one-month highs on Friday morning. Market participants reassessed optimistic U.S. macroeconomic data that indicate the country has a decent chance of avoiding a recession while technically being in one. Also, Investors reevaluated the latest Fed readings. They were initially perceived as dovish. Nevertheless, the most recent U.S. data point to a far better scenario than anticipated. Inflation has finally begun to moderate, while employment remains strong. Other business measures, such as the Philadelphia Fed Manufacturing Index, also surprised the upside. Traders will get fresh insights from Fed Chair Jerome Powell at next week's annual Jackson Hole symposium.
The Euro dropped 0.92% to a four-week low yesterday and is extending losses this morning amid a strong dollar rally. According to the most recent data, the annual inflation rate in the Eurozone was confirmed at a new record high of 8.9% in July 2022, up from 8.6% in June and 2.2% a year earlier. Additionally, investors weigh the European Central Bank's tightening stance against the region's economic forecast. The ECB is expected to raise rates by 50 basis points in September. Still, the region's recent bleak outlook is concerning due to the energy crisis caused by lower Russian supplies.
The British Pound fell to a 4-week low yesterday as the U.S. Federal Reserve's policy minutes pushed the U.S. dollar higher. Simultaneously, market participants were concerned that rising domestic inflation would result in higher interest rates and a weaker British economy. The GfK Consumer Confidence indicator in the U.K. fell to a new low of -44 in August, down from -41 in July, according to data released this week. Currently, the Sterling appears to be nudging lower. However, further losses might be limited as today's data release showed that Retail sales in the U.K. unexpectedly gained 0.3% over the previous month in July 2022, reversing the last three months' decline and surpassing market estimates of a 0.2% reduction.
The Japanese Yen fell to its lowest level in three weeks against the dollar as growing domestic inflation failed to support the currency amid widening monetary policy divergence. Japan's headline inflation rose 2.6% in July, up from 2.4% in June, the sharpest rate since April 2014. Core consumer prices remained above the central bank's 2% target for the fourth consecutive month. The Yen has been under pressure this week due to predictions that the Bank of Japan will retain ultra-low interest rates, even as the U.S. Federal Reserve is willing to tighten policy to keep up with inflation. In addition, safe-haven flows due to recession concerns have acted as headwinds for the Yen.
The Canadian dollar fell 0.27% before resuming its downward trend as the U.S. currency strengthened widely. Domestically, investors continued to monitor economic data to major central banks' policy decisions. Producer and raw material prices in Canada fell considerably in July, reducing concerns that the Bank of Canada will have to continue rising rates as aggressively as in previous sessions. In the equities market, the session's comeback in crude oil prices fueled sharp gains for Toronto's heavyweight energy sector, which rose more than 2% on average. Furthermore, bullion support from the minutes of the Fed's July meeting has strengthened the Canadian resources sector, with Nutrien and Barrick Gold surging strongly.
The Mexican Peso fell consecutively for the third day on Thursday (closed 0.68% lower). Latin American currencies lost as the U.S. dollar spiked for the second day. Meanwhile, according to Banxico deputy governor Gerardo Esquivel in an interview on Wednesday, Mexico's inflation will peak in August or September before beginning to fall. He also stated that inflation will end the year at roughly 8%, compared to the current rate of 8.15%, and that Mexico will achieve its 3% inflation objective in the first and second quarters of 2024.
The Chinese Yuan slid against the U.S. dollar, reaching its lowest level in 23 months, as a weak economy puts pressure on China's central bank to enact additional easing measures. The People's Bank of China will likely lower the country's benchmark lending rates for corporate and mortgage loans on Monday after abruptly lowering two significant rates earlier this week to boost demand and offset signs of an economic slowdown. On Thursday, Goldman Sachs and Nomura reduced their predictions for China's GDP, citing weakening demand, Covid-related uncertainty, and power shortages. Analysts caution, however, that the PBOC has little leeway in the face of ongoing inflationary pressures, rising global interest rates, and the risks of increased capital outflows.
The Brazilian Real closed slightly down against the U.S. dollar yesterday. Investors were still digesting the minutes of the Fed's most recent monetary policy meeting. The central bank did not explicitly signal the continuation of the 0.75 percentage point interest rate hikes but instead emphasized the need to keep inflation under control. Meanwhile, in Brazil, the spotlight remained on the election campaign, highlighting the release of a Datafolha survey coming Thursday. In other news, Brazilian stocks climbed for the fifth session on Thursday, with the benchmark Bovespa reaching a new four-month high.