Economic activity and inflation data put stagflation fears to the test 

It has all been about the US dollar yet again this week, with the DXY index falling back below the 94 handle. As outlined in our October forecasts, we have been expecting this USD correction following the aggressive surge in late September, and it seems that a stabilisation in the macro backdrop this week facilitated it. Dollar downside has been mixed across G10 and EM markets, with the decline in the DXY index not telling the whole story. While the broad dollar index moderated, losses were more sizable outside of EUR and JPY, which account for more than 70% of the DXY weighting. The Kiwi dollar led gains in the G10 space, rallying over 1.4% on the week, while other high beta currencies followed the NZD move higher.

Next week, the data calendar revolves around October’s preliminary PMI prints, while China’s Q3 GDP data also scans as one of the more interesting releases.

The focus on activity data is likely to be heightened given growth concerns over previous weeks and the impact higher input costs are having. This is especially the case in the eurozone, UK, and China, where rising energy costs are the most pronounced.

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Authors:

Simon Harvey, Senior FX Market Analyst

Ima Sammani, FX Market Analyst

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