World reserve currency consolidated
Last week the US dollar consolidated and moved within the trading range established in July. The world's reserve currency mostly appreciated over the week, but depreciated significantly during Wednesday's trading session, when the country's inflation figures continued to rise and exceeded market expectations.
US economic data was strong and positive. The inflation figure for June was particularly noteworthy with the annual rate of 5.4%, the fastest since 2008. Excluding energy and food prices, the annual rate of inflation was 4.5% or at its highest level since November 1991. The country's bond market reacted moderately, and interest rates changed relatively little, while the investor consensus remains rather conservative and the expectations are to see no more than 1.0% rate hikes by the US central bank by the end of 2024. The production price index showed a 7.3% annual increase, which continued to rise from the 6.6% level of the previous month and pointed to persistent inflationary pressures in the country. Industrial production rose by 9.8% YoY. The number of initial jobless claims was down moderately from 370,000 to 36,000 during the week.
Sentiment towards the Corona virus remained negative with the weekly average of new cases rising from 425 to 492 thousand per day. In the US, the situation continued to deteriorate with the weekly average of new cases rising from 18,000 to 31,000 per day. The number of vaccines administered in the country increased from 333 million to 337 million, with a change of only 4 million, and remained at its lowest level since the beginning of the year. Overall, the number of people vaccinated with at least one dose in the US rose from 55.3% to 55.9% of the population, an increase of 0.6% over the week. Among other countries where the prevalence of the delta strain is particularly high, the focus has remained on England, where the weekly average number of infections has risen rapidly from 29 to 39 thousand per day.
The major currency pair EUR/USD depreciated to a new 3-month low in the middle of last week but recovered some of the losses in the remaining days. Economic data in the Old Continent included June inflation, which came in at 1.9% YoY and remained stable compared to May. European industrial production grew at an annual rate of 20.5% in May. The European Central Bank carried out a review of its strategy, which was last modified in 2003, and published the results. It was decided to change the formulation of the main objective, which is an extremely important decision. Previously, the Bank's objective was to achieve price stability and keep inflation at, but below, 2%. The new target is formulated as a symmetrical inflation rate of 2%, which means that lower inflation is just as undesirable as too high. This change is likely to keep the scope for monetary stimulus at a higher level for longer. The EUR/USD pair ended the week's trading down -0.6%.
The most important Asian pair USD/JPY started the week on a positive note, but on Wednesday it corrected significantly with the hot US inflation data, but still managed to hold on its 200-day moving average by the end of trading week. Among the economic data was the producer price index, which posted a 5.0% YoY growth and remained stable compared to the previous month. USD/JPY ended the week unchanged.
The British pound depreciated against the US dollar to the level of 1,377, a one-month low. Economic data included June inflation, which came in at 2.5%YoY, while the producer price index saw a 9.1% rise. In the labour market, average earnings rose 7.3% YoY and the unemployment rate was 4.8%. GBP/USD ended the trading week down -1.0%.
This week will start quietly and no important data is scheduled for Monday. Tuesday morning will see the release of Japanese exports and inflation figures and Wednesday will be quiet again. On Thursday, attention will turn to the European Central Bank meeting and its decisions. On Friday, English retail sales data and preliminary purchasing managers' indices for the major economies are due.
According to Admiral Markets market sentiment data, 72% of investors have long positions in the EUR/USD pair (up 39 percentage points compared to last week). In the main Asian pair USD/JPY, 41% of investors have long positions (down -12 percentage points). In GBP/USD, 79% of participants expect a rise (up 58 percentage points). Such market data is interpreted as a contrarian indicator, so a depreciation of EUR/USD and GBP/USD and an appreciation of USD/JPY is expected. The analysis of positioning data should be combined with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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