26 June 2023 Weekly Analysis
GCMAsia Weekly Report: June 26 – 30
Market Review (Forex): June 19 – 23
US Dollar
The U.S. dollar index against a basket of six major currencies rebounded after hovering at six-week lows last week, as the U.S. dollar strengthened amid continued hawkish comments from the Federal Reserve chairman.
Last week, investors turned their attention to the closely watched testimony of Federal Reserve Chairman Jerome Powell to get more information on the direction of monetary policy. Previously, Powell gave hawkish remarks, saying that inflation is still far from the Fed’s 2% target and that interest rates will be raised 2 times or 50 basis points within this year. As a result, investors are looking forward to additional hawkish remarks from the Fed chairman in Wednesday’s testimony. However, Powell repeated last week’s remarks in his testimony that inflationary pressures continue to be high and that the process of bringing inflation down to 2% is still a long way off. The hawkish rhetoric didn’t get the market excited as investors were already bracing for continued rate hikes at the upcoming meeting. At the press conference the next day, the chairman of the Federal Reserve was asked whether to cut interest rates this year. He gave a firm stance that the possibility of cutting interest rates this year is not likely to be feasible, and the dollar rebounded later. The dollar rebounded after coming under pressure after the Markit Services Purchasing Managers’ Index fell to 54.1 from 54.9 late on Friday, but beat market expectations of 54.0.
It’s worth highlighting, though, that Fed members are divided on a rate hike. Atlanta Fed’s Bostic feels rates should remain steady at current levels. He believes that continuing to raise interest rates will make the economy worse.
USD/JPY
Due to the Bank of Japan’s continued ultra-loose policy, investors lowered expectations for the Bank of Japan to end negative interest rates, which weakened the yen, and the USD/JPY exchange rate rose sharply, closing at 143..73 last week. The yen continued to fall after the release of the Bank of Japan meeting minutes. The member said that inflation may fall temporarily, and the overseas economy is still uncertain, making it difficult to assess the sustainability of future wage increases. Japan will not be able to maintain its 2% inflation target if wage increases are modest. Board members voted for the central bank to continue supporting wage growth momentum by maintaining monetary easing, even though wages have risen more than expected so far this year. Additionally, the Bank of Japan will continue its yield curve control (YCC) to keep its long-term bond yields between 0% and 1%. Bond prices rose and bond yields fell through massive purchases of Japanese government bonds (JGB). This allows companies to further stimulate the economy by issuing new bonds at lower rates, using JGB yields as a reference rate.
EUR/USD
EUR/USD remained marginally lower at the weekend to 1.0893 after weaker-than-expected economic data from the European Union. According to S&P Global data, the Eurozone Composite Purchasing Managers Index fell to 50.3 from 52.8, below the forecast of 52.5. In addition, the service sector in Germany and France fell to 54.1 and 48.0 from 57.2 and 2.5, respectively, below forecasts of 56.2 and 52.0. The release of the data sent the euro lower on Friday amid heavy selling by investors. Standard & Poor’s said that new orders in the euro zone fell for the first time since January this year, while employment growth has also slowed. However, European inflation is still far from the central bank’s 2% to 3% target. Lagarde, including members of the central bank, continued to make hawkish remarks, making investors worried about the European economy.
GBP/USD
The GBPUSD pair surged towards the end of the week to close at a price of 1.2576. The Bank of England unexpectedly raised interest rates by 50 basis points but could not sustain the rise of the pound, and the pound fell back later. The UK May inflation data released on Wednesday remained unchanged at 8.7% from the previous reading, but the market expects the reading to fall to 8.5%. High inflation data forced the Bank of England to take a tougher stance to suppress inflation. Therefore, last Thursday, the Bank of England raised interest rates by 50 basis points to 5.00%. According to Mettis Link News, every percentage point increase in interest rates increases the cost of borrowing across the market by around £20bn. As the UK’s previous debt-to-gross domestic product (GDP) exceeded 100% for the first time in 62 years, the Bank of England’s aggressive interest rate hikes made investors believe that the British economy will enter a recession. Therefore, the pessimistic sentiment gripped the UK market, putting pressure on the currency.
Market Review (Commodities): June 19 – 23
GOLD
Gold prices fell sharply this week, closing at 1920.67. Gold prices fell under pressure as the U.S. dollar strengthened amid continued hawkish comments from the Federal Reserve. Last week, the chairman of the Federal Reserve said that the core personal consumption index remained high, and the strong labor market made the US inflation far away from the central bank’s 2%. The testimony statement this week also gave the same expectation of raising interest rates. Powell also said that there will be no possibility of interest rate cuts this year. In order to better reduce inflation, high interest rates will be maintained for a period of time.
CrudeOIL
Crude oil prices fell at the end of the week, closing at 69.49 a barrel. As the U.S. dollar strengthened due to the Fed’s hawkish remarks, other countries need to buy crude oil at a higher price, which suppressed crude oil prices. Last Tuesday, China, the world’s second largest oil consumer, cut its benchmark lending prime rate (LPR) for the first time in 10 months, cutting its five-year loan rate by 10 basis points, as expected by the market. Some investors believe that China’s reduction of the main lending rate will not be enough to boost the economy, and will also slow down the growth of oil demand. Oil futures prices weakened in the shock. . In addition, the Bank of England and the Swiss National Bank raised interest rates one after another, causing the country’s economy to slow down, the outlook for crude oil demand has become bleak, and prices have retreated from highs to key support points.
Weekly Outlook: June 26- 30
For the week ahead, investors will continue to focus on crucial economic data such as CB Consumer confidence and US GDP. Besides that, the talk of Fed Chairman and ECB Lagarde’s talk will also be in the eyes of investors.
As for oil traders, they will be eyeing on US inventories level reported by API and EIA to gauge the strength of crude demand for world’s largest oil consumer.
Highlighted economy data and events for the week: June 26 – 30
| Time | Market | Event | Actual | Forecast | Previous |
| Monday – 26 June 2023 | |||||
| 16:00 | EUR | German Ifo Business Climate Index (Jun) | – | 90.7 | 91.7 |
| Tuesday – 27 June 2023 | |||||
| 01:30 | EUR | ECB President Lagarde Speaks | – | – | – |
| 20:30 | CAD | Core CPI (YoY) (May) | – | 3.9% | 4.1% |
| 20:30 | USD | Building Permits | – | 1.491M | 1.417M |
| 20:30 | USD | Core Durable Goods Orders (MoM) (May) | – | – | -0.3% |
| 22:00 | USD | CB Consumer Confidence (Jun) | – | 104.00 | 102.3 |
| 22:00 | USD | New Home Sales (May) | – | 657k | 683k |
| Wednesday – 28 June 2023 | |||||
| 04:30 | CrudeOIL | API Weekly Crude Oil Stock | – | – | -1.246M |
| 21:30 | USD | Fed Chair Powell Speaks | – | – | – |
| 21:30 | EUR | ECB President Lagarde Speaks | – | – | – |
| 22:30 | CrudeOIL | Crude Oil Inventories | – | – | -3.831M |
| 23:00 | EUR | ECB President Lagarde Speaks | – | – | – |
| Thursday – 29 June 2023 | |||||
| 14:30 | USD | Fed Chair Powell Speaks | – | – | – |
| 20:00 | EUR | German CPI (MoM) (Jun) | – | – | -0.1% |
| 20:30 | USD | GDP (QoQ) (Q1) | – | 1.4% | 1.3% |
| 20:30 | USD | Initial Jobless Claims | – | – | 264k |
| 22:00 | USD | Pending Home Sales (MoM) (May) | – | – | 0.0% |
| Friday – 30 June 2023 | |||||
| 07:30 | JPY | Tokyo CPI (YoY) (Jun) | – | 3.8% | 3.2% |
| 09:30 | CNY | Manufacturing PMI (Jun) | – | – | 48.8 |
| 09:30 | CNY | Non-Manufacturing PMI (Jun) | – | – | 54.5 |
| 14:00 | GBP | GDP (QoQ) (Q1) | – | 0.1% | 0.1% |
| 14:00 | GBP | GDP (YoY) (Q1) | – | 0.2% | 0.2% |
| 17:00 | EUR | CPI (YoY) (Jun) | – | 5.7% | 6.1% |
| 20:30 | USD | Core PCE Price Index (MoM) (May) | – | – | 0.4% |
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