Hawks take flight in non-US Central bank policy, US Dollar pares back recent strength

US Dollar took the podium as it closed out the last week’s trading session by continuing to pare back this month’s gains.

A disappointing reduction in industrial production figures earlier last week revealed a decline of 1.3% in September, following a sub-par August report of -0.1%. In addition, productivity data from the Philly Federal Reserve Manufacturing Purchasing Managers Index (PMI) suggest a slowdown in output, with official figures reporting a 22.48% reduction from 30.7 to 23.8. Q further notes the positive data in the Philly Fed Employment sub-index advanced from 26.3 to 30.7.

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US Federal Reserve Chairman Jerome Powell also spoke at the end of the week, confirming the proposed Fed schedule on tapering stimulus.

The sustained decline in Greenback strength appears to result from shifting sands in central bank policies from elsewhere in the world.

In particular, inflation pressures continue to make headlines as the European Central Bank (ECB), Bank of England (BoE), and Bank of Canada (BoC) face heightened prospects of tightening monetary policy earlier than initially anticipated.

Overview of Last Week’s Session Close

The US Dollar Currency Index fell by 0.31% to 93.642 in the week ending Friday the 22nd of October 2021.

The Pound

The Pound-Sterling (GBP) rose by 0.03% to finish the session at $1.3755, with the British stock index FTSE100 (Financial Times Stock Exchange Index 100) partially reversing the previous week’s 1.95% gain by ending the last week’s down 0.41%.

The Eurozone

In the Eurozone, a 0.36% gain in the Euro saw price achieve US$1.1643, up from US$1.1601 in the previous week. Major European indices saw a mixed bag of results, with the German DAX40 falling by 0.28% and the French CAC40 rising 0.09% in the week. On the other hand, the EuroStoxx600 index saw a modest gain up by 0.53%.

The Loonie

Positive fundamental developments in Canada saw a marginal 0.01% gain in the Loonie against the US Dollar to C$1.2367 compared to the previous week’s rise to C$1.2368 (0.83%).

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The Yen

In the far east, soaring US 10-Y Treasury Yields and robust economic data continue to bolster the Japanese Yen as it recovers some prior losses with a 0.63% gain against the Greenback to conclude the recent session at ¥113.500.

The Yuan

Meanwhile, weak GDP data from the Chinese economy indicates a growth of only 0.2%, with year-on-year (YoY) GDP growth falling to 4.9% versus 7.9% in the last quarter. Nevertheless, solid YoY retail sales (+4.4%) and positive unemployment data (-3.9%) bolster the national currency and stock indices despite further disappointment in industrial production and fixed asset investment figures.

As a result, the Chinese Yuan rose by 0.79% to CNY6.3850, while the CSI300 (China Shanghai-Shenzhen Stock Index 300) and HSI50 (Hang Seng Index 50) closed out the week’s trading up by 0.56% and 3.14%, respectively.

The Oceanic

In Oceania, the latest fundamental data saw a returned focus on inflation which stimulated the NZD. Furthermore, with limited Aussie data released, the RBA bolstered support for the policy shift proposed to occur in 2024.

As such, Aussie Dollar and Kiwi Dollar saw gains of 0.61% to US$0.7466 and 1.27% to US$0.7157, respectively.

Now, moving to the new week ahead...

Qluster analysts approach the new week’s data with a particular focus on European, Japanese, and US fundamental data, suggesting an increased focus on tightening monetary policy ahead of schedule.

Fears of stagnating productivity growth, elevated by the nagging worries of rising costs and pandemic induced supply-side pressures, throw weight behind the burgeoning doubts of transient inflation.

Rest assured, Q intends to report back on the latest technical developments in this week’s publications of the Technical Outlook.

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See you for the next update.

- q

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