Better-than-expected jobs data helped to boost market optimism and general risk-taking attitudes last week. Both the USD and the GBP experienced a wave of strength, while the EUR weakened.

weekly market predictions for the week ahead

Week starting 10-08-2021

 

USD

  • We have seen positive movement from the Dollar over the past week, the most notable coming after the stellar employment data, with the nonfarm payrolls increasing to 943,000 from an expected 870,000. 
     
  • On a more sombre note, the rise of the Covid Delta variant in the US is threatening to derail the country’s economic recovery. This is a major risk factor to consider over the next while, as it’s becoming apparent that we aren’t out of the woods yet. 
     
  • Coming up this week, the single major data release is the US inflation (CPI) data on Wednesday. It is expected to moderate slightly, which would calm the fears of low employment growth and high inflation. This is a data point to be watched closely. 

EUR

  • The EUR lost significant ground against most majors over the course of the week. Markets kicked off on Monday with the EUR/GBP pair opening at around 0.854 and closing at 0.852 for the day. This downward trend continued for the rest of the week (closing at 0.849 on Thursday) and accelerated on Friday (closing at 0.847). 
  • Much of this drop was driven by the continued loose economic policy supported by the ECB and the perceived divergence of ECB monetary policy from other developed economies’ monetary policy. The most conspicuous case is the BOE who hinted that it will start considering an end to economic stimulus when employment data correlates with economic expansion. Strong jobs data in the US on Friday also accelerated expectations of tighter monetary policies to come from the States. 
  • This week has seen the EEA continue to post data pointing towards economic growth. This is mainly due to the easing of lockdown restrictions and the mitigation of supply bottlenecks (especially in manufacturing). This, however, has not yet translated into higher inflation for the EEA and may not be enough to stimulate a discussion on tapering just yet. Going forward, analysts will keep an eye on ECB bond buying (and the size of the PEPP) as this will be a clear indicator of monetary policy direction.  

GBP

  • The catalyst for the GBP/USD pair last week was the nonfarm payroll jobs report, which was released on Friday.
  • The GBP was unable to compete with the USD’s powerful move to the upside after the US reported that 943,000 new jobs were added during the month of July. Renewed confidence in the US’s economic recovery helped the USD to elevate, as the Dollar Index (DXY) moved up 0.58% in a single day.  
  • This week’s MPC meeting saw no changes to the UK’s cash rate, nor to its quantitative easing programme. The Bank of England’s interest rate was unanimously kept at 0.1%, while the bond-buying programme remains at £875 billion.
  • Manufacturing PMI fell to 60.4 during the month of July, from a reading of 63.9 in the previous month. Service PMI also slipped, from 62.4 in June to 59.6 in July.
  • This week, the balance of trade is due to be released. The current trade surplus is expected to revert to a trade deficit, after the trade balance recorded a surplus of 0.9 billion in May.
  • Preliminary GDP growth figures for Q2 are also due to be released. GDP is expected to grow by 5%, after Q1 experienced negative GDP growth of 1.6%.

ZAR

  • This last week displayed a weak Rand as a cabinet shuffle by Ramaphosa decreased investor confidence and the country’s ability to absorb the backlash from risk-off sentiment in the commodity spectrum.
  • The major blow came in the form of the resignation of the Finance Minister, Tito Mboweni, who was replaced by Enoch Godongwana. The ZAR ended up finding resistance at 20.59 against the GBP and 14.98 to the USD.
  • Wednesday will see the business confidence statistic come out. It has been on the rise in recent months, indicating a growing economy post initial Covid lockdown.

AUD

  • Last week, the Reserve Bank of Australia unanimously voted to keep the cash rate at the ultra-low 0.1% level. Australia’s central bank also indicated that the current bond-buying programme will remain unchanged this month, at $5 billion, but is likely to be reduced to $4 billion next month.
  • The central bank cited the recent rise in Covid cases as the main threat to the country’s further growth, with Q3 GDP expected to decline.
  • Balance of trade for the month of June was released. Australia’s trade surplus widened from $9.269 billion to $10.496 billion, exceeding consensus estimates. Exports rose by 4%, while imports moved up by 1%.
  • This week will provide further insight into the condition of Australia’s labour market. While forecasts suggest that another 50,000 jobs will be recorded during July, the unemployment rate is expected to rise marginally, from 4.9% to 5%.
  • Both Westpac and NAB are due to release their consumer confidence readings. NAB consumer confidence is expected to rise towards 14, from 11.

NZD

  • Last week saw the release of employment data for the second quarter. The unemployment rate for the second quarter decreased to a one-year low of 4%.
  • Regardless of the optimistic employment data, the Kiwi Dollar struggled to make any headway as commodity prices fall.
  • Later this week, we can expect to see the release of the performance of manufacturing index for July. The index is expected to drop slightly from 60.7 in June.

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