Safe-haven currencies performed particularly well following the US Federal Open Market Committee (FOMC) meeting this week.

Weekly market report for the week ahead

Week starting 24-08-2021

 

USD

  • The US Federal Open Market Committee (FOMC) minutes, released last Wednesday, sent the markets into a risk-off mood as the Federal Reserve indicated that they are likely to begin tapering their quantitative easing programme towards the end of the year. Risky assets were hit the hardest and equity markets took a tumble, while safe-haven assets outperformed. This can be seen by the steep dip in the S&P 500 Index, coinciding with lower US 10-year bond yields.
     
  • The Dollar Index (DXY) has made a substantial move to the upside, rising by 1.06%. After kicking the week off from an open of 92.52 and touching highs of 93.73, the DXY closed at 92.50 on Friday.
     
  • Retail sales data for the month of July was released last week. The results indicated a decline of 1.1% during the month, which was lower than expected. 
     
  • This week, data from the US will provide further insight into the region’s personal income and spending figures for July, as well as the change in durable goods orders.

EUR

  • Last week, the Euro lost ground against some safe-haven currencies, particularly the USD, JPY and CHF. However, we saw the EEA currency remain strong in the markets for most of the week, against the sterling and most emerging market currencies.
  • It seems that markets are pricing in a Fed taper of asset purchases for the end of 2021. This is causing the strong USD which, together with European inflation data (2.2% and higher than the ECB target), placed a cap on the EUR for most of the week.
  • Fears of the Delta variant and continued rise in coronavirus cases has contributed to the risk-off sentiment this week and saw a significant gain in safe-haven assets (including the currencies mentioned above).

GBP

  • Safe-haven currencies performed particularly well following the FOMC meeting. The Pound lagged behind slightly, with the GBP/EUR pair losing 0.93% and the GBP/USD pair losing 1.75% during last week’s trade, closing off the week around the 1.3620 level.
  • The number of people claiming unemployment benefits in the UK fell by 7,800 in July, marking the fifth consecutive decline. While this reading signals an improvement in the labour market, the result was much lower than the 180,000 forecast.
  • The GfK consumer confidence index underperformed for the month of August, coming in at -8, after July saw a reading of -7. However, the inflation rate for July was also lower than expected, coming in at 2% after a reading of 2.5% in June.
  • This week is looking rather light for the UK on the data front, with the main releases being the manufacturing and services PMI for the month of August.

ZAR

  • The ever-volatile South African Rand took another hit in the markets last week, moving in line with broader market sentiment and capital flows. The GBP/ZAR pair appreciated by 2.08% during the weekly trade, topping out at 20.96 before closing the week at 20.83. The Rand performed particularly poorly against the US Dollar, losing 3.90% during the week. After opening at R14.73, the USD/ZAR broke through the 15.00 resistance level and reached a high of 15.39, before closing off at 15.29.
  • Locally, there was some interesting data released. The inflation rate came in at 4.6% for July, after year-on-year inflation was reported at 4.9% last month. The halt in rising inflation has helped to support the Rand and will likely prevent the South African Reserve Bank (SARB) from raising interest rates too soon. Furthermore, retail sales showed signs of positivity, with year-on-year growth of 10.4% in June.
  • This week, South Africa will release its unemployment rate for Q2 of 2021. Unemployment is expected to tick upwards, from a staggering unemployment reading of 32.6% in Q1. Better-than-expected jobs data will likely help the ZAR to withstand headwinds, while underperformance is likely to lead to further ZAR weakness.

AUD

  • The Aussie Dollar ended last week in the red, due to combination of both local and global headwinds. Risk-off market sentiment, along with tighter local lockdown measures, has made it tougher for the AUD to hold its ground.
  • The GBP/AUD pair traded with a topside tilt last week, appreciating by 1.50%. After opening trade at 1.8817, the pair powered through the 1.90 resistance level and touched a high of 1.9159, before and closing off at 1.9090 on Friday.
  • This week, retail sales data for July are due to be released, and are forecast to decline further, after the previous reading of -1.7%. Manufacturing and services PMI will also be released, providing further insight into the Australian economy.

NZD

  • The Reserve Bank of New Zealand decided to keep interest rates unchanged at the record low of 0.25%, despite inflation pressures. The decision to keep the interest rate unchanged is likely due to the recent Covid outbreak and lockdown within the country.
  • The balance of trade for July is to be released on Wednesday. The forecast suggests that the surplus will widen slightly to NZD300 million, which is not surprising given the low commodity prices.
  • We can expect the Kiwi Dollar to take cues from global news as well as updates regarding the worsening wave of Covid.

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