9.3
8.521 reviews
English
EN
Last week's main event, as expected, was the meeting of central bankers in Jackson Hole. The general tone of Powell's speech was "dovish." This suggests that the Fed chairman is not fazed by the recent spike in inflation. He is in no hurry to end monetary accommodation and certainly not to raise interest rates.
As a result, the exchange rates of most major currencies rose against the US dollar. In addition to a decline in the dollar, there was also a rise in risk assets, with equities and commodities leading the way as usual. Emerging market currencies benefited from the speech.
Although Powell was unmistakably dovish, he did confirm the market expectation that the Fed will start tapering its bond-buying program before the end of the year. The timing and pace of that will depend on inflation, labor market data, and the discussion that will take place within the Fed – which we believe will soon intensify.
This week's U.S. jobs report will determine the outcome of the FOMC's September meeting. Flash inflation data for the eurozone, due on Tuesday, will also affect markets. Below are the major currencies in detail.
The strong PMI data from the eurozone confirmed our view that the economy remains resilient and that the delta variant has not had much impact on the economy's strong recovery so far. We expect the inflationary pressures now seen in the US to materialise in the eurozone with some delay, due to energy prices and supply chain disruptions.
The August flash inflation figure will be released on Tuesday. This could exceed 4% – the highest value in decades. However, it will be difficult to determine to what extent this is the effect of real cost pressures or of one-off events such as the end of VAT cuts in Germany.
The PMI indicators for economic activity were disappointing, especially in the services sector. Still, the markets didn't take this seriously. The consensus seems to be that the UK's high vaccination rates and positive post-pandemic numbers make it more resilient to the delta variant.
There is little economic news or policy news on the agenda this week, so the exchange rate of the British pound against the US dollar is likely to follow the exchange rate of the euro.
So Powell remains dovish, but other members of the FOMC seem to be less relaxed about the supply-demand imbalance and the resulting inflationary pressures. It is now only a matter of time before the tapering of the asset purchase programme is announced, which is why any data point that says something about inflation or the labour market is extra important.
As a result, the August jobs report is the most important event for the currency markets this week. Strong job growth and a decline in the unemployment rate are expected again.
By: Enrique Diaz-Alvarez
Enrique Diaz-Alvarez is chief risk officer and heads Ebury's analyst team in New York. Because of his drive, passion and thorough knowledge, Enrique is recognized by Bloomberg as one of the most accurate predictors of market movements.
About Ebury:
Ebury makes international markets more accessible with tailored foreign exchange services and flexible trade credit for businesses. Ebury works with more than 12,000 organisations and carries out €12 billion in foreign exchange transactions in 140 different currencies. The company has offices in the United Kingdom, the Netherlands, Spain, and Poland. Ebury's priorities:
- Financial services normally reserved for large multinationals
- Financing your purchases
- Market knowledge and tailor-made foreign exchange services
- Our network of liquidity providers and intermediary banks
- Transactions in over 140 different currencies
Learn more at www.ebury.nl
