Patchy economic recovery makes investors still wary as they await developments from central banks and the mood across markets remains tentative.
The global economic outlook is still far from rosy while uncertainty still surrounds what happens next in term of central bank policies.
Investors now focused on the European Central Bank’s policy decision on Thursday. The message the ECB will deliver on its inflation forecasts is likely to set the direction for the euro.
US job growth slowed further in August, threatening the economy’s recovery from the COVID-19 pandemic, according to NFP Report. Permanent job losses increased as programs to help businesses pay wages have lapsed or are on the verge of ending. The jobless rate fell to 8.4% from 10.2% in July.
As the US government funding started running out, there are doubts about the sustainability of the economy’s recovery.
The U.S. central bank overhauled its policy framework last week, which would allow it to keep rates lower for longer periods.
China’s exports rose for the third consecutive month in August, eclipsing an extended fall in imports. More of China’s trading partners relaxed coronavirus lockdowns boosting the recovery in the world’s second-biggest economy. Exports in August rose a solid 9.5% from a year earlier while imports slumped 2.1%. China’s export performance has not been as severely affected by the global slowdown as feared.
Amid an EU-UK trade negotiations impasse, the chances of a no-deal Brexit have risen sharply. Negotiations have been threatened by Britain’s insistence that they have full autonomy over its state aid plans. UK Prime Minister’s office released comments on Monday that Britain has set a deadline of Oct. 15. If none of the free-trade deal is agreed, both sides should “accept that and move on.”
LQDFXperts – Euro hit $1.20 for the first time since 2018
Broader sentiment on the dollar remains weak. The Fed Chair Powell reiterated on Friday that the central bank plans to keep U.S. rates lower for longer. The dollar’s downtrend will continue for at least another three months due to the outlook for the Fed’s monetary policy. The drop in the dollar pushed the euro above the key $1.20 level for the first time since 2018. But those gains quickly faded after ECB chief economist Philip Lane said the EUR/USD exchange rate “does matter” for monetary policy.
GBP/USD showed modest losses during the week, falling below the 1.33 level. The pound is down around 1.3% this week – its biggest weekly fall since June. Sterling is expected to weaken towards the end of the year. Experts expect the British currency to be at $1.30 at the end of November, a month before the end of Britain’s transition period with the EU. The Bank of England warned that the economic fallout from the coronavirus could be worse than expected.
After two losing weeks, Dollar/yen rebounded and gained close to one per cent. In Japan, the highlight of the upcoming week is GDP for the second quarter, which is projected to slide by 8.1%. With the Japanese economy struggling, the US dollar rally could continue.
It was another busy week for AUD/USD, which sustained losses of over 1 per cent. This marked the pair’s worst week since June. A healthier greenback could mean a bumpy road for risk currencies like the Aussie.
The Canadian dollar posted slight gains last week, as USD/CAD broke below the 1.30 mark for the first time since January. It was a quiet week for the pair, but the Canadian economy continues to show signs of recovery.
Investors still wary – A heavy week of macroeconomic data
Traders shifted their focus to the European Central Bank’s meeting to see if policymakers will introduce yet more stimulus.
- On Monday (07.09) the U.S. financial markets are closed for the Labour Day holiday so trading volumes may be thinner than usual.
- Figures on household spending, current account and gross domestic product due on Tuesday (08.09).
- On the data front, the United States has producer prices on Wednesday (09.09) and consumer price data on Friday (11.09).
- China’s consumer prices will also be released on Wednesday (09.09) while the Bank of Canada will also make an interest rate announcement.
- Investors focus on the European Central Bank’s policy decision on Thursday (10.09). Most analysts don’t expect a change in policy stance but are focusing on the message the ECB will deliver on its inflation forecasts.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, BBC, The Guardian