US dollar hits 10-month high

Last week the US dollar was the standout performer and the world's reserve currency rose to its highest level since November 2020. This trend partly reflected minutes of the last meeting of the US central bankers, where members discussed economic stimulus and debt-buying program, particularly timing of scaling-back its pace in near future, which probably surprised investors and made them more cautious, which was also reflected in the stock indices.

USD 

In the US, economic data pointed to an economic recovery and further growth, especially in the labour market segment. July retail sales grew by 15.8% year-on-year and reflected the continued strengthening of the domestic consumer and his expectations. Industrial production in July was 6.6% higher than at the same time a year earlier, while the utilisation rate of the manufacturing sector rose to 76.1% and was at its highest level since March 2020. The number of new jobless claims fell from 0.375 million to 0.348 million on the week and recorded a new pandemic low, suggesting a further strengthening of the labour market.

The spread of the virus showed signs of slowing down and the number of new infections globally remained fairly stable, with the weekly average for the last 7 days changing from 647 to 648 thousand per day. In the US, the trend remained negative, although the pandemic momentum slowed down and the weekly average of new cases rose from 129 to 139 thousand per day. The number of vaccines administered in the country increased from 355 million to 361 million, a change of 6 million. It has been officially announced that it is recommended to receive a boost dose of the vaccine if the citizen is vaccinated with Pfizer or Moderna. Overall in the US, the number of people vaccinated with at least one dose rose from 59.4% to 60.4% of the population and increased by 1.0% over the week. In Lithuania, the number of people vaccinated with at least one dose rose from 55.5% to 57.5%, a difference of 2.0%. In England, the number of infections is on the rise again, with the average number of infections rising from 28 to 31 thousand, suggesting that the delta strain is significantly more resistant to vaccines and that infectiousness is high, even in the vaccinated population.

Euro 

The major currency pair EUR/USD depreciated significantly throughout the week, having started trading at the level of 1.180, and on Friday it briefly fell to 1.167, the lowest point in the last 10 months. Economic data in the Old Continent are positive and preliminary data show that the economy grew by 13.6% year-on-year or 2.0% quarter-on-quarter in the second quarter. The German Producer Price Index showed a 10.4% annual rise, the fastest in 45 years or since 1975. This points to a shortage of goods and raw materials in supply chains, which pushes prices up significantly and thus has a positive impact on the overall basket of consumer prices and their prices in the longer term. The EUR/USD pair ended the week down -0.8%.

JPY

The most important Asian pair USD/JPY did not show any strong trend and after starting the week with a fall, it later rose, although it remained below its 200-day moving average. Data included preliminary economic growth in the second quarter, which came in at 1.3% year-on-year or 0.3% quarter-on-quarter. The country's export growth in July was as much as 37% year-on-year. Annual inflation was -0.3% in July and remained negative despite the global upward sentiment. USD/JPY ended the week trading up 0.2%.

GBP 

The British pound and US dollar pair mirrored the global reserve currency trend. The pair started trading at the 1.387 level and fell during the week without any major consolidation periods or bounces, ending trading at 1.362. Economic data included labour market data: the number of unemployed fell by 7.8 thousand, the unemployment rate dropped to 4.7% and the rise in wages with bonuses was as high as 8.8% year-on-year. Inflation was 2.0%, but the Producer Price Index showed a rise of 9.9%, which is likely to keep pressure on prices in the coming periods. The country's July retail sales were 2.4% higher than a year earlier. GBP/USD ended the week down -1.8%.

Economic Events 

The week will start with preliminary data on the Purchasing Managers' Indices for the industrial and service sectors and the US Existing Home Sales. US New Home Sales data are scheduled for Tuesday, while the country's Durable Orders figures are due on Wednesday. No major news is scheduled for Thursday, but the Jackson Hole Central Bank Symposium will begin and run until Saturday, with speeches by bank executives that could have an impact on the markets. On Friday, the US Personal Consumption Expenditures Index will be monitored, which is an alternative measure of inflation in the country.

According to Admiral Markets market sentiment data, 47% of investors have long positions in EUR/USD (up 14 percentage points from last week). In the main Asian pair USD/JPY, 49% of investors have long positions (down -13 percentage points). In GBP/USD, 78% of participants expect a rise (up 42 percentage points). Such market data is interpreted as a contrarian indicator, so that EUR/USD and USD/JPY are likely to appreciate and GBP/USD to depreciate. The analysis of positioning data should be combined with fundamental projections and technical analysis.

Source: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com

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