GBP stabilised following Liz Truss resignation, the Euro gained on USD and Japanese yen reached multi-decade lows against greenback
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Weekly Forex Report and Outlook 24-Oct-2022:
Over the past week, GBP stabilised following Liz Truss resignation, the euro gained on USD and the Japanese yen reached multi-decade lows against the greenback.
The New Zealand and Aussie dollars were again big winners, gaining against several other major currencies.
The JPY dropped to above the 150-level against the dollar for the first time in decades on Thursday and on Friday came withing touching distance of 152.
This weakening was halted by a seemingly large-scale forex intervention still underway from the Bank of Japan ahead of its policy meeting this coming week, as well an article in the Wall Street Journal on Friday that suggested Federal Reserve policymakers were concerned about over-tightening and how to communicate their intention to slow down after a likely hike of 75 basis points next month.
Sterling started last week strong after Bank of England governor Andrew Bailey said he expected November’s meeting would “require a stronger response than we perhaps thought in August”.
GBP/USD reached a high of 1.143 before sliding back to a week’s low on Friday of 1.106 as levels of political and economic uncertainty were heightened. But NZD/USD and AUD/USD were notable movers, up 3.7% and 3% respectively over seven days.
The week ahead
Policy meetings from the European Central Bank, the Bank of Canada and the Bank of Japan come in the week ahead, the first following the IMF meetings in Washington where surging inflation rate hikes and their negative effects on growth were raised.
An interest rate hike is expected from Canada on Tuesday, though analysts are talking about Ottawa being near peak rates. Last time it hiked 75 basis points and before that 100bps and inflation is starting to retreat.
The ECB is widely anticipated to also raise rates on Wednesday, while a day later the Bank of Japan is not.
Several ECB policymakers have been calling for more action, saying rates are nowhere near hard enough, with the knowledge that this strong medicine will tip many countries in the bloc into recession, with steep slowdowns already widespread amid record-high inflation and growth risks amid volatile energy prices and concerns about energy supplies.
A 75bps rate hike seems like a done deal to many observers, including Deutsche Bank’s economists, who expect another 75bps hike in December, +50bps in February, and +25bps in March, reaching a terminal rate of 3%.
Despite all this action, US macroeconomic data will still be the biggest news, due to the influence of the dollar and how Federal Reserve decision-making could be tipped one way or another by some significant numbers during the week.
Prices for personal consumption expenditures, real personal consumption, and employment costs are due Friday, a day after advance GDP figures and durable goods orders.
US third-quarter GDP is expected to show a strong rebound from the fall of 0.6% in the second.
First up is consumer confidence data on Tuesday, which should provide some evidence on how households are reacting to higher prices and interest rates.
Analysts at UBS said they see the data having little impact on USD, which has been in a holding pattern after a strong rally in August and September.
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