Weekly FX Market Recap: Aug. 1 – 5

The U.S. dollar takes the top spot once again this week among the major currencies, once again supported by hawkish Fed speak and a strong U.S. employment update.

Notable News & Economic Updates:

J.P. Morgan global manufacturing PMI for July fell to 51.1 (a two year low) vs. 52.2 in June

S&P Global PMI commodity prices index eased to 2.0 in July while supply index showed shortages decelerated

Reserve Bank of Australia hiked interest rates 50 bps to 1.85%

China PMI drop into contractionary conditions was unexpected

OPEC boosted oil production by 270K bbl/day to help tighten the market

J.P. Morgan Global Composite PMI for July showed business optimism at 22-month low of 50.8

China hits Taiwan with trade curbs amid tensions over Pelosi

EIA crude oil inventories up by 4.5M barrels vs. projected 1.5M drop

The Bank of England raised interest rates by 50 bps to bring the main borrowing rate to 1.75%

Brazil central bank delivered a 50 bps rate hike to bring Selic interest rate to 13.75%

The Reserve Bank of Australia Monetary revised growth and unemployment forecasts lower/higher inflation in their latest policy statement that

The monthly U.S. employment report came in much stronger than expected at +528K (vs. 250K forecast), & sparked sentiment that the Fed may have to tighten more aggressively

Oil dipped big this week on rising concerns of lower demand outlook and rising inventory data.

Intermarket Weekly Recap

As mentioned in this week’s “Week Ahead in FX” post, this week was pretty stacked with top tier economic data and central bank events to potentially get the market’s moving.

But despite all of the potential catalysts, price action across most of the major markets was pretty choppy, with no directional moves that clearly stood out.

It’s likely that traders continue to be torn between many of the conflicting themes currently playing out, including an aggressive global monetary policy tightening outlook in what looks to be a slowing global economy (as shown by a fresh round of net negative PMI updates). It’s also likely that traders refrained from strong directional biases until the latest major data points and events played out.

We did see some short-term sentiment directional moves this week, most notably a shift towards risk aversion behavior on Monday on geopolitical and economic catalysts from Asia. This was mainly driven by China’s warnings to the U.S. on U.S. House of Representatives Speaker Nancy Pelosi visit to Taiwan on Tuesday. We also got a surprise read from Chinese PMI surveys showing contractionary conditions in China in July.

On Tuesday, it looks like the market’s focus shifted to comments from several Federal Reserve members re-iterating that rate hikes aren’t likely to slow down any time soon. Bond yields and the U.S. dollar strengthened on the session, while dollar denominated assets like gold and crypto took a dip. Also on the central bank front, the Reserve Bank of Australia and the Bank of England hike interest rates as expected, sparking short-term moves for their respective currencies.

Arguably, the big event of the week came on Friday, the latest U.S. employment update, which surprised bigly with over half a million net jobs gain in July (+250K forecast) and a tick lower in the unemployment rate to 3.5%.

This flies in the face of recession fears, and understandably sparked speculation that the Fed is able to maintain a hawkish stance on monetary policy tightening. As expected, risk assets took a hit after the event while bond yields popped higher to new intra-week highs.

This development was able to solidify the Greenback’s lock on this week’s top spot among the major currencies, while on the other end of the spectrum, the Japanese yen took last place once again, likely due to the Bank of Japan’s continued stance of keep their monetary policy loose.

USD Pairs

S&P Global U.S. manufacturing PMI: 52.2 in July vs. 52.7 in June as new orders and output

ISM manufacturing PMI at 52.8 in July vs. 53 in June; new orders index fell to 48 and prices index to 60 fell

U.S. construction spending sank by 1.1% vs. projected 0.3% uptick

The number of U.S. job openings decreased to 10.7M in June – U.S. BLS

ISM services PMI moved higher in July to 56.7 vs. the previous month read of 55.3; prices index ticked 7.8 points lower lower to 72.3

US factory orders for June 2.0% vs. 1.1% estimate

U.S. trade deficit fell by 6.2% in June to $79.6B vs. a 1.3% decline in May

U.S. Non-Farm Payrolls showed an increased of 528K jobs in July, much higher that both forecast (+250K) and the previous month; the unemployment rate ticked lowered from 3.6% to 3.5%

GBP Pairs

U.K. Manufacturing PMI: 52.1 in July (a 25-month low) vs. 52.8 in June

U.K. nationwide house prices index rose by 0.1% m/m in June, the slowest rate in the past year

UK’s Liz Truss has 34 point lead over Sunak – YouGov/Times Poll

UK services firms slow again, price pressures ease slightly – PMI

The Bank of England hiked borrowing costs by 50 bps to 1.75%; expects inflation to peak in October but remain elevated through 2023

UK construction PMI sank from 52.6 to 48.9 in July, the lowest since May 2020

Halifax: average house price falls by 0.1% in July – first drop in a year

EUR Pairs

Eurozone Manufacturing PMI: 49.8 in July vs. 52.1 in June; price inflation slowed

Germany Manufacturing PMI: 49.3 in July vs. 52.0 in June; new orders declined deeply

France Manufacturing PMI for July: 49.5 vs. 51.4 in June; excluding the 2020 pandemic, France saw the largest fall in output since 2013

German exports surge by 4.5% to record level in June

Euro zone services PMI declined in July to 51.2 vs. 53.0 in June

Eurozone PPI for June: +1.1% m/m vs. 0.5% m/m previous

Euro area retail trade was down -1.2% m/m in June, down -1.3% in EU

German factory orders dipped by 0.4% vs. expected 1.0% fall, previous 0.2% decline

Germany’s industrial output unexpectedly increased in June by +0.4% vs. a projected -0.3% rate

CHF Pairs

Swiss SECO consumer climate index tumbled from -27 to -42 vs. -31 estimate

Swiss Manufacturing PMI comes in better-than-expected at 58.00 vs. 56.3 forecast

Switzerland CPI for July: +3.4% y/y vs. +3.5% y/y forecast

CAD Pairs

S&P Global Canada Manufacturing PMI: 52.5 in July vs. 54.6 in June, the lowest read in 25 months.

Canada trade surplus widened to C$5B in June

Canada Building Permits in June: -1.5% to $11.9B

Canada employment change in July: -30K vs. +15K forecast; unemployment rate held at 4.9%

Canada Ivey PMI showed contractionary conditions in July, falling to 49.6 vs. 62.2 in June

NZD Pairs

NZ building consents down by 2.3% in June vs. 0.5% decline in May

Global dairy prices are down -5.0% since the last auction on Jul. 19.

New Zealand jobless rate unexpectedly rises from 3.2% record low to 3.3% in Q2

New Zealand employment market tight as wage inflation hits 14-year high

AUD Pairs

AIG manufacturing PMI slowed from 54.0 to 52.5 in July

Melbourne Institute inflation gauge up by 1.2%, its fastest rate in two decades

Australia job ads dip 1.1% in July, strong rally may have passed peak

S&P Global Australia Manufacturing PMI: 55.7 in July vs. 56.2 in June

RBA hiked interest rates by 0.50% to 1.85% as expected

Australia’s construction sector contracts for second month (45.3) in July

S&P Global Australia Services PMI for July: 50.9 vs. 52.6

Australian trade surplus widened to 17.67B AUD vs. 14B AUD forecast

Australia’s AIG services index higher from 48.8 to 51.7 in July

JPY Pairs

Japan Services PMI for July: 50.3 vs. 54.0 in June; the lowest in four month due to dampening demand

Japan annual cash earnings accelerates from 1.0% to 2.2% in June

Japanese household spending rose 3.5% y/y in June, the first rise in four months