FX market outlook

FX market outlook

Posted on Friday, September 8 2017 at 8:46 am GMT+0000

Dollar falls to 32-month low; rivals hit fresh highs

It was another difficult session for the US dollar as numerous factors including political issues, disappointing economic numbers, and dangerous natural phenomena weighed heavily on the currency driving it to a 32-month low. Consequently, the dollar’s weakness boosted other majors and helped them reach new highs.

The dollar fell to low levels not seen since the beginning of 2015 during the Asian trading hours as the country is preparing to welcome another powerful Hurricane named Irma in Florida, hopes for another rate hike soon are fading while North Korean fears are increasing.

On Friday, New York Fed President William Dudley, an influential member of the rate-setting committee, was less hawkish than previous times, saying that inflation is expected to reach the Fed’s 2% target over the medium-term, while he added that data in the following six months will clarify whether the weakness in inflation is attributed to temporary factors. Moreover, as other fed members supported recently, he argued that interest rates should increase gradually given that inflation will rebound. A day before, the Cleveland Fed President Loretta Mester, who is a voting member of the committee in 2018, supported the above view as well, stating that a gradual pace rate hikes will prevent the economy from overheating as political and fiscal uncertainties keep business optimism subdued.

Meanwhile, Trump claimed yesterday that it is not “inevitable” that the North Korean story will end up with a war but he retained that a military response to North Korean ongoing nuclear programs is still an option.

The dollar index dropped to a 32-month low of 90.96 during the Asian session but managed to climb to 91.15 later on, down 0.51% on the day.

Dollar/yen hit a fresh 10-month low at 107.61 before it edged up to 107.84.

At the same time, GDP growth figures out of Japan came in lower in the second quarter than the preliminary numbers published earlier. The Japanese economy expanded by 0.6% q/q, below the 1% estimated initially and 0.7% forecasted. The actual number for the first quarter was at 0.3%. On a yearly basis, GDP growth fell to 2.5% compared to the preliminary mark of 4.0% and the forecast of 2.9%, while the figure stood at 1% in the previous quarter.

Dollar/swissie stretched down by 0.60% to more than a two-year low of 0.9419.

Euro/dollar surged to a 32-month high of 1.2091 in the session, following the widely expected ECB decision on Thursday to keep its rates unchanged at 0% and deposit rates at -0.4%. However, the ECB Chief Mario Draghi’s’ softer language about the strengthening euro was the main driver of the currency. Draghi did not give hints about whether the central bank will intervene in markets to weaken the common currency while he highlighted that the decision on potential policy tapering will be probably announced in October.

The aussie jumped to a 23-month high of $0.8124 on the back of a buoyant dollar although Chinese data released early today disappointed analysts.

China’s Trade surplus in August narrowed from 46.73bn yuan to 41.99bn yuan while expectations were for a surplus equal to 48.60bn yuan. Exports rose by 5.5% compared to 7.2% observed in July, while analysts expected the figure to increase by 6%. On the other hand, imports increased by 13.3% above the 10.0% expected and 11.0% seen in July.

Australia released home loans data for the month of July. Home loans grew by 2.9%, more than twice the 1.2% seen in June and 1% projected.

Looking at oil markets, oil prices were mixed after the weekly report of the Energy Information Administration which showed that US crude oil inventories rose unexpectedly for the first time after 9 weeks by 4.580mn barrels. This arose as the disastrous tropical storm Harvey reduced the demand for crude oil which is the primary input at refineries. Gasoline inventories which are the first products of the refining process dropped by 1.085mn barrels.

WTI crude oil was down by 0.04% on the day at $49.07 per barrel, while London based Brent was up by 0.35% at $49.06 per barrel.

Regarding gold, the precious yellow metal jumped by 0.32% to $1353.10 an ounce, reaching a 25-month high.