A variety of new data released last week provided insight into the sentiments of the consumer. Despite high inflation, supply constraints, and Federal Reserve (Fed) rate hikes, household finances have remained a source of optimism.
Forex
Source: Bloomberg. Click to see full size.
Last week, EUR/USD traded back to near parity, settling at weekly lows of $1.004. Amidst risk-off flows, the US dollar gained a solid footing. Later, as recent economic data indicated a strong performance, a healthy job market, and strong retail sales, the US dollar benefited further from signs that the US may be able to avoid a steeper economic downturn. However, US policymakers are still planning to continue raising interest rates to cool inflation and are looking to push rates beyond neutral.
As a result of a broad-based US dollar recovery, GBP/USD fell to its lowest level in a month – near $1.18. The pair lost over 300 pips in a massive sell-off caused by recession fears and reevaluation of the Fed’s rate hike plan.
Meanwhile, USD/JPY rose to its highest level since July 27, settling at around ¥137 due to several factors revolving around Fed officials, all indicating that the US central bank remains on track to tighten its monetary policy further. However, the Bank of Japan has repeatedly maintained its ultra-easy policy settings, resulting in a significant divergence in monetary policy.
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Commodities
Source: Bloomberg. Click to see full size.
Last week, gold prices showed a downward trend and ended the week at around $1,747. The rising US Treasury bond yield, hawkish Fed comments, and the rise in the US dollar’s prices weighed down gold’s performance. The pair struggled to recover and ended up losing more than 2% on a weekly basis.
This week will be important for gold, focusing on Federal Open Market Committee (FOMC) Chairman Jerome Powell’s speech. If Powell fights against the market’s expectation of the Fed becoming dovish in the second half of 2023, the US dollar should be able to excel and will drive gold further down. On the other hand, if the chairman suggests a 50bps rate hike in September rather than a 75 bps increase, US T-bond rates might plummet and may pave the way for a strong rally in gold.
Meanwhile, oil dipped for the week due to a strong US dollar and fears that an economic slowdown will limit demand. Moreover, the strength of the US dollar, which hit a five-week high, also limited crude’s gains by driving up the cost of oil for customers using other currencies.
Cryptocurrencies
Source: Bloomberg. Click to see full size.
It was a tough week for the cryptocurrency ecosystem. Most major cryptocurrencies depreciated due to heavyweights like Bitcoin and Ethereum posting double-digit percentage losses by the weekend.
Bitcoin started the week above the $24,000 level. However, it fell below a bullish trendline following the release of minutes from the latest FOMC meeting. These minutes revealed that US central bankers are unlikely to lessen their current monetary hawkishness. This resulted in Bitcoin spiralling downward after reaching a two-month high above $25,000. It ended the week at $20,988, down by 13.7% from last week’s closing price, continuing its recent losing streak.
Similarly, Ethereum fell below a bullish trendline. It started the week above the $1,900 level and ended it at a $1,600 level. Ethereum’s price showed weakness after the recent spike in buying pressure failed to sustain despite the anticipation of its upcoming merge upgrade.
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US stock markets
|
Name of the index |
Friday’s close |
*Net change |
*Net change (%) |
|
Dow Jones Industrial Avg (Wall Street 30) |
33,706.74 |
-54.31 |
-0.16% |
|
Nasdaq (US Tech 100) |
13,242.90 |
-322.97 |
-2.38% |
|
S&P 500 (US 500) |
4,228.48 |
-51.67 |
-1.21% |
Source: Bloomberg
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.
It was a week of losses for all 3 major indices. The Dow Jones fell by 0.16%, the S&P 500 fell by 1.21%, and the Nasdaq declined by 2.38%.
Friday’s losses ended a four-week winning streak for the US equity markets, forcing major benchmarks into negative territory for the week. The biggest losers were Amazon, Apple, and Microsoft.
Despite signs of cooling inflation, Fed policymakers reaffirmed their commitment to tighten their monetary policy, driving stock markets lower. The Federal Reserve chairman’s comments on interest rate hikes are causing traders to focus on how aggressively the Fed could raise them to combat inflation.
Since March, the Fed has raised its benchmark overnight interest rate by 225 basis points to reduce inflation.
Several companies are scheduled to report their earnings this week, including Zoom Video Communications, NVIDIA, and Salesforce. Furthermore, Federal Reserve policymakers will discuss a vital part of the US economy’s struggles at the Jackson Hole Economic Symposium on Thursday, 25 August 2022.
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