FX Weekly Recap: July 10 – 14, 2023

This has not been the best of weeks for the dollar bulls as the greenback found itself lagging behind the forex pack after seeing downbeat inflation data from the US.

Not only have these hopes of a future rate hike by the Fed been dampened, but the weak CPI numbers have also allowed other lower-yielding currencies like the yen and franc to steal the safe-haven spotlight.

Did you miss the major forex headlines? Here’s what you need to know about the FX landscape last week:

US dollar pairs

Market concerns ahead of the highly anticipated US CPI report kept the dollar range-bound at the start of the week.

It wasn’t long before risk appetite caught up to expectations of weak inflation data, causing the safe-haven dollar to turn bearish before the actual release. Even the official numbers fell short of expectations, which led to a sharp sell-off in the US dollar on Wednesday.

Another wave of decline ensued after the PPI readings were released the next day, as lower-than-expected PPI gains indicated consumer inflation slowing much further in the coming months.

🟢 Ascending main arguments

NFIB Small Business Index An improvement from 89.4 to 91.0 in June, beating the consensus of 89.9, to reflect a rebound in optimism

Unemployment claims rates It decreased to 237 thousand from the previous figure of 249 thousand against an estimated reading of 251 thousand

Federal Reserve Vice Chairman of Oversight Michael Barr He said on Monday that more increases are likely to be needed in 2023

US Treasury Secretary Yellen met with Chinese officials In “direct and productive” discussions of economic and political issues

Preliminary US Consumer Confidence for July: 72.6 (64.5 expected; 64.4 prior); Short-term inflation expectations increased from 3.3% to 3.4%

🔴 descending main arguments

Chairman of the Atlanta Federal Reserve Bostick He said on Monday that the Fed could be more patient with signs of an economic slowdown

consumer balance It slowed from $20.3 billion to $7.2 billion in May, its lowest level in two years, rather than rising to the estimated figure of $21.1 billion.

IBD/TIPP Economic Optimism Index It fell from 41.7 to 41.3 against an expected rise to 45.3 in July, hitting an eight-month low

Headline CPI It showed a rise of 0.2% on a monthly basis in June against an estimated rise of 0.3%, bringing the annual rate down from 4.0% to 3.0% against an expected reading of 3.1%. Core CPI rose 0.2% month over month against the 0.3% consensus

Title and core PPI It posted meager gains of 0.1% m/m in June versus an expected gain of 0.2%, and May’s readings were revised down to show a 0.4% drop in the headline figure and a 0.1% increase in the core reading.

euro pairs

The shared currency had a mixed performance during the week as the lack of major catalysts from the Eurozone saw it mostly act as a counter currency and arguably close slightly in the green.

🟢 The main arguments rising

Italian industrial production It rebounded 1.6% m/m in May, after a previous decline of 2.0% and outpacing an estimated rise of 0.6%.

Calculations for the European Central Bank monetary policy meeting He signaled the possibility of another rate hike in July, thanks to an upbeat growth outlook and an upgrade in inflation forecasts for 2024.

🔴 descending main arguments

Sentix investor confidence index It eased from -17.0 to -22.5 vs. -18.0 expected in July, reflecting stronger pessimism among investors and analysts.

German ZEW Economic Sentiment Index It fell from -8.5 to -14.7 vs. -10.7 expected in July, and the Eurozone Economic Sentiment Index fell from -10.0 to -12.2 vs. -10.2 estimate.

Industrial production It posted a dismal 0.2% month-over-month gain in May, less than the estimated 0.3% gain.

Wholesale prices in Germany In June 2023: -2.9% yoy (-4.1% yoy expected; -2.6% yoy)

The international trade balance of the eurozone In May 2023: – €0.3 billion (- €9.4 billion forecast; – €12.0 billion previously)

Sterling pairs

The British Pound was also one of the weaker performers of the week, weighed down by mixed jobs data and mostly downbeat middle class reports.

Although the British pound was able to make a very strong advance against the greenback and the Canadian dollar, it looks set to end up in the red against the rest of the currencies.

🟢 The main arguments rising

BRC Retail Sales Control Acceleration from 3.7% to 4.2% yoy in July, far from the estimated 4.6% increase but still indicative of a recovery in retail spending

average income index It accelerated to 6.9% during the three-month period ending in May, beating the consensus of 6.8%. The previous reading was upgraded from 6.5% to 6.7%.

GDP report for the month of May It recorded a smaller decline of 0.1% in economic activity against an estimated decline of 0.3% on a monthly basis

🔴 descending main arguments

Governor of the Bank of England Bailey He emphasized that inflation remains “unacceptably high” but expects inflation to decline significantly over the remainder of the year.

Change the number of claimants This came in at 25.7K vs. 20.5K in June. The May reading has been updated to show a larger 22.5K drop in unemployment vs. the 13.6K drop at the start. Unemployment rate up from 3.8% to 4.0%

RICS home price equilibrium Decreased from -30% to -46% vs -35% to indicate that more property surveyors are reporting lower prices in their areas

commodity trade deficit It widened from £14.6 billion to £18.7 billion against an expected deficit of £14.9 billion, as imports rose 4.2% m/m in May while imports fell 4.4%

Industrial production decreased by 0.6% versus the 0.4% month-on-month decrease estimated in May, Factory production by 0.2% m/m

Bank of England Credit Conditions Survey for the second quarter of 2023The availability of secured and unsecured credit to households is expected to moderate in the third quarter of 2023 but remain stable to businesses.

Swiss Franc pairs

The Swiss Franc is currently in the lead this week as the lack of major economic data seems to be working in its favour.

The only major competitor for the higher position is the Japanese yen, as CHF/JPY moved gradually lower and then sideways for the better part of the week before rallying in a strong bullish trend during the latter half.

🟢 The main arguments rising

Switzerland’s producer price index For June 2023: 0.0% mom (-0.4% mom expected; -0.3% mom previously)

AUD pairs

Arguably, the Australian dollar is the net loser against most of its forex peers as improvements in business and consumer sentiment indicators have not been enough to keep it in the green against most of the major currencies.

After a bit of a choppy start and some midweek consolidation, the commodity currency rallied when US CPI came in short and eased some concerns about rising global borrowing costs.

But the addition of downbeat inflation and business data from China may have attracted more sellers than buyers, at least against currencies that didn’t see massive selling pressure of their own this week.

🟢 Ascending main arguments

Westpac consumer sentiment It posted an increase of 2.7% in July, a significant improvement from the previous rise of 0.2%.

NAB Business Confidence Index It rose from -3 to 0 to reflect a turn away from pessimism in June

New loan growth in China is accelerating To 3.05 tons in June (2.9 tons forecast) compared to 3.05 tons from 1.36 trillion in May

MI inflation expectations Unchanged at 5.2% in June, indicating that price pressures may remain steady over the next 12 months.

🔴 descending main arguments

China’s main consumer price index It slowed from 0.2% to 0.0% year-on-year in June versus the estimated figure of 0.2%, Chinese PPI Decreased 5.4% YoY versus 5.0% expected and a previous drop of 4.6%

Chinese trade surplus It expanded from $65.8 billion to $70.6 billion, compared to the expected $90.0 billion.exports decreased -12.4% yoy in June (forecast -6.1% yoy; -7.5% yoy prior); The biggest decline in more than three years

CAD pairs

Next to the US dollar, the Canadian dollar also fell behind the rest of the forex band during the week, even after the Bank of Canada raised interest rates as expected.

Although there was a bit of a bullish slant to their actual statement, the Canadian dollar was seeing red ahead of and after the event, and struggled higher for the rest of the week.

The initial selling was associated with the weak US CPI release, so a bearish argument could be that due to the close geography/trading relationship, the US inflation reading could be a signal of the Canadian inflation updates we may see, as soon as next week.

Whatever the case, it was a bad week for the Canadian dollar bulls despite higher oil prices and Canadian net positive updates.

🟢 Ascending main arguments

Building permits It rebounded by 10.5% m/m vs. 7.3% expected in May, following a previous reading that fell from -18.5% to -20.1%.

The Bank of Canada raised interest rates by 0.25%. From 4.75% to 5.00% as expected, which keeps the door open for higher interest rates in the future due to stubborn inflationary pressures and an upgraded economic outlook

Bank of Canada Monetary Policy Report: The Bank of Canada expects inflation to remain around 3% for next year, and return to the 2% target by mid-2025.

while piston, BOC Governor Macklem It highlighted the tightness of the labor market and the willingness to continue raising interest rates

Canada Manufacturing Sales for May 2023: +1.2% m/m (+0.8% m/m expected; -0.1% m/m previously)

NZD Pairs

Although the RBNZ delivered a widely anticipated rate hike pause during the month, the New Zealand dollar still managed to hold quite the lead against the majority of its peers this week.

Its overall downward trend from the first half of the week turned into a U-turn after the release of the US CPI. The New Zealand dollar made its biggest gains against the US dollar and the Canadian dollar while holding small scratches against the yen and the Swiss franc.

🟢 Ascending main arguments

Food price index It rose from 0.3% m/m in May to 1.6% in June, indicating slightly stronger inflationary pressures later on.

🔴 descending main arguments

The Reserve Bank of New Zealand kept interest rates unchanged at 5.50%. As expected, noting that “the level of interest rates limits spending and inflationary pressure as expected and required”

Visitor arrival It slowed more than 16.9% m/m in April to 27.5% in May

BusinessNZ Manufacturing Index It fell from 48.7 to 47.5 in June, reflecting a sharper contraction in the industry

Japanese yen pairs

The low-yielding yen benefited from dollar weakness and yen jitters to end up in second place behind the franc this week.

Mid-level economic data was indeed downbeat, but the yen bulls were charging in early, which led to a sustained bullish trend for the Japanese currency in the first half of the week.

The Japanese yen was able to sustain its rally against the dollar throughout, but ended up giving back some of the gains to its forex peers when the US CPI triggered a risk rally.

🔴 descending main arguments

Bank lending slowed from 3.4% to 3.2% year-on-year in June vs. 3.5% estimated

current account surplus Shrinking from 1.90 trillion yen to 1.70 trillion yen vs. 1.87 trillion yen expected in May

Economic Watchers Sentiment Index Decreased from 55.0 to 53.6 vs. 54.8 expected in June, indicating weaker optimism among workers

basic machinery commands It slowed to 7.6% m/m in May versus an expected rise of 0.9%, erasing an earlier gain of 5.5%.

producer prices It eased from 5.2% yoy to 4.1% in June vs. 4.3% expected, marking the sixth consecutive monthly slowdown.

Japanese Industrial Production for May 2023: -2.2% m/m (-1.6% expectation; -0.7% m/m)