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Market predictions and forex forecasts for the week of 19 September 2022.
Week starting 19-09-2022
We have excluded the Russian Ruble from the analysis in our report due to the extreme volatility associated with the currency.
- The US Dollar remained at the top of the charts as higher-than-expected inflation figures cemented the fact that the Fed would be raising rates in its next meeting this week. The USD strengthened against 18 of the 19 currencies we monitor. The most notable gains were against the Norwegian Krone (NOK) (3.41%) and the Brazilian Real (BRL) (1.96%), whilst the Dollar weakened slightly against the Indian Rupee (INR) (-0.01%).
- Last week’s main event was the US inflation data, which resulted in a massive rally in the USD. The US Fed was hoping that peak inflation would be behind us, but as prices continue to rise, it will now be forced to raise interest rates even more to try and cool these rising prices. This should result in a major pivot to the USD. On Thursday, the US retail sales data was released and remained positive. This indicates that US consumers are still spending, which further signals to the Fed that it has the capacity to raise rates.
- The main event this week is the US Federal Open Market Committee (FOMC) meeting and the Fed interest rate hike on Wednesday. Markets are pricing in anything from 75 basis point (bps) to a staggering 100 bps hike. If there is a 100-bps rate hike, we expect the USD to remain elevated for the foreseeable future. The market will be moved by this event, so we eagerly anticipate the outcome. The US Fed Chair Jerome Powell’s speech will occur on Friday and should give us some indication as to where he sees the economy moving.
- Due to the continued rate hikes in the Euro Area, the EUR strengthened against 14 of the 19 currencies we monitor. The largest gains were against the NOK (2.52%) and the BRL (1.74%), whilst the most notable losses were against the Turkish Lira (TRY) (-0.27%) and the USD (-0.27%).
- The EU industrial production figures were released on Wednesday. There was a larger-than-expected decline, which weighed against the EUR. Then, the EU inflation data was released on Friday, which, to no surprise, came in higher than expected, as higher energy prices seep through into the price of goods and services. This higher inflation print adds weight to the argument that the ECB might raise interest rates more aggressively or longer than expected.
- There will be minimal data from Europe this week. We will monitor how the EU will attempt to bolster its energy supply and what it could do to support the economy. We believe that the US interest rate decision will move this market as well.
- The British Pound had a negative week as the country mourned the passing of Queen Elizabeth II. The GBP weakened against 13 of the 19 currencies we monitor. The most notable gains were against the NOK (1.31%) and the Canadian Dollar (CAD) (0.73%), whilst the moves to the downside were against the USD (-1.45%) and the INR (-1.45%).
- The UK month-on-month GDP data was released on Monday and increased slightly, which was GBP positive. On Wednesday, the UK inflation data came in slightly lower than anticipated. Additionally, the Pound was sold off slightly after the Bank of England (BoE) moved its interest rate decision to this week. As the week progressed, the GBP hit its lowest level against the USD since 1985.
- With The Queen’s funeral declared a bank holiday on Monday, there is a shortened trading week in the UK, so volumes were subdued in the forex markets. The BoE’s interest rate decision will be released on Thursday. The BoE is expected to maintain its usual stance and raise rates by 50 bps. Any deviation from this would result in volatility in the currency.
- The South African Rand had a dismal week, as higher inflation figures from the US resulted in a strong pivot from emerging-market currencies straight back into the USD. The ZAR weakened against 14 of the top 19 currencies we monitor. The most impactful gains were against the NOK (1.02%) and the BRL (0.34%), whilst the largest losses were against the INR (-1.68%) and the USD (-1.63%).
- Over the weekend, stage 6 loadshedding was implemented, which has hit the currency even more – especially at such a critical moment for the ZAR, as the currency hit levels against the USD last seen during the Covid pandemic. South African retail sales data was released on Wednesday, which came in negative, as the higher cost of living impacts consumers.
- This week, we look to see if loadshedding continues to drag on the ZAR. For data, the South African inflation figures will be released on Wednesday. Inflation is expected to rise, in line with the global trend. The South African Reserve Bank’s (SARB) interest rate decision will be released on Thursday. We expect the SARB to hike rates by 75 bps and, if they disappoint with a lower number, the ZAR could weaken drastically. The currency will also be influenced by the decision of the US Fed on Wednesday.
- The Australian Dollar also weakened last week as the market moved to safe havens. The AUD weakened against 16 of the 19 currencies we monitor, with the largest gains against the NOK (0.92%) and the BRL (0.22%), whilst the greatest losses were against the USD (-1.99%) and the TRY (-1.78%).
- There was minimal data from Australia last week, with the focus being the Reserve Bank of Australia’s (RBA) bulletin, which indicates future expectations from the RBA. The Australian unemployment rate was released on Thursday and increased slightly to 3.5%.
- There will again be no significant data from Australia and so we expect the market to be influenced by global factors such as the interest rate decisions from the US and UK.
- The NZD weakened against 17 of the 19 currencies we monitor. The gains were against the NOK (0.89%) and the BRL (0.15%), whilst the major losses were against the TRY (-1.84%) and the INR (-1.82%).
- The main data point from New Zealand last week was the quarter-on-quarter and year-on-year GDP growth rates. Both figures increased, which was a positive for the NZD, as this pulled the country out of a technical recession.
- There will be minimal data from New Zealand this week, so we will be focused on major central banks raising rates.
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