News & Analysis

In a quiet week for markets, the US dollar resumed the upward trend that began in the middle of July. The greenback posted gains against every other G10 currency, but inroads against the euro, pound, and franc were marginal, limiting the broad dollar index’s weekly gains to three quarters of a percent. In terms of the big losers, the kiwi dollar and Swedish krona—two currencies with troubled economies—both fell by more than a percent against the dollar, but the worst losses were seen in the yen and Norwegian krone. For the yen at least, further losses are unlikely due to the Bank of Japan’s willingness to punish shorts through stealth interventions in the spot market. While not too much happened this week, a few key themes stood out. The first was Chinese trade data on Tuesday, which raised bearish sentiment globally with poor readings for both imports and exports flashing warning signs about global and Chinese demand. In the US, which was the main area of focus for markets, the two major worries never materialised. The US Treasury’s quarterly refunding auctions went off without a hitch despite heightened fears after Fitch’s credit rating downgrade last week, and Thursday’s inflation report met expectations, further reducing the risk of another Fed hike this year. Central banks were mostly quiet, with just the Reserve Bank of India and Banxico holding meetings and both keeping their policy rates steady.

Next week, things should heat up a bit. Granted, the only central bank meetings coming up are in Norway and New Zealand. In the former we expect a 25bp hike after the previous 50bp surprise. The latter however looks to be on hold for now, barring a major surprise. Outside of that, however, markets will receive a whole range of updates on inflation and labour markets, which will serve as crucial tests to the narratives put forth by central banks, and be key for both interest rate pricing and currency levels. A raft of data out of the UK including employment, wages, CPI and retail sales should give an update on the BoE’s progress. But action on the inflation front will not just be limited to Britain. Canada and Japan will also see updates on the rate of price growth, whilst Australian labour market figures should also provide a steer on inflationary pressures down under. Although the data front will be relatively quiet for the eurozone and the US, meeting minutes for the Fed should still keep dollar watchers entertained, though price action looks set to be driven by action on the other side of dollar pairs over the course of the week.

You can read the Week Ahead in full here:




Simon Harvey, Head of FX Analysis

Jay Zhao-Murray, FX Market Analyst

María Marcos, FX Market Analyst

Nick Rees, FX Market Analyst


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