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Will International Currencies Shake Off the Inflation Blues this Week?

Will International Currencies Shake Off the Inflation Blues this Week?

USD Dollar: Weekly Range (93.5 to 94.5) DXY Spot 93.6 Range 93.6-94.2

  • Last week’s speeches from Fed Chair Jerome Powell didn’t give much support to the greenback. Eighteen-month-low jobless claims offered a glimmer of good news to the American economy, and a worker shortage is boosting wages in parts of the economy. Many USD investors are expecting the Fed to provide clarity on when interest rate hikes will begin. Many analysts predict rates will rise in the second half of 2022, while Reuters forecast the Fed will wait until 2023.
  • The Consumer Price Index saw inflation rates hit 5.4% year over year based on increased prices in fuel, new cars, rent, and furniture. Prices dropped, however, for clothing, used vehicles, and airline tickets. Supply chain woes, truck driver shortages, and port bottlenecks are causing shipping delays, as consumer demand for goods continues to grow despite increased prices. The US flash PMI manufacturing index came in lower than expected. US GDP will be announced this week and is expected to come in around 2.8%.

Canadian Dollar – Weekly Range (1.2294 to 1.2409)

  • September’s inflation rate hit an eighteen-year high, as prices at gas pumps rose by nearly 33 percent from September 2020. Inflation rates have exceeded the Bank of Canada target ranges for six months in a row now. High oil prices continue to support the loonie, and investors will watch for a USD/CAD breakout in the 1.24 range.
  • Canadian retail sales slipped by a couple of points in September, after rising by the same rate in August. Sales at grocery stores and gas stations were brisk, while sales of vehicles were flat due to ongoing chip shortages. GDP numbers will be released this week. Investors will watch to see if the Canadian stock market will continue its rally, the longest since 1985.

Euro: Weekly Trading Range (1.1573 to 1.1668)

  • Following the comments from Fed Chair Powell, earlier EUR/USD gains retreated slightly towards 1.1621. France’s services sector outperformed their PMI estimate but was offset by manufacturing PMI weakness. Germany exceeded their flash manufacturing PMI forecast. High inflation rates and announcements from the European Central Bank about the need to raise interest rates diminished enthusiasm towards the shared currency.
  • The ECB will share its latest GDP numbers this week, and economists predict the European economy will grow by around 2.1% year-over-year.

British Pound: Weekly Trading Range (1.3710 to 1.3833)

  • GBP/USD ended up lower at the end of last week due to tough talk by the European Union on Brexit. UK officials claim that talks around the Northern Ireland hard border are productive, while EU officials are tight-lipped on the matter. After meetings in Brussels last week, lead negotiators took a break before more meetings starting Tuesday in London.
  • COVID cases and hospitalizations increased last week in the UK are raising fears about more lockdowns to come. Though inflation rates came in lower than expected in Britain, the Federal Reserve announced they would raise interest rates starting in the summer of 2022, giving the pound some support which many investors hope will last this week. The UK flash manufacturing PMI beat forecasts by nearly two points. These figures seem positive, yet analysts are concerned that supply chain and staffing shortages are causing manufacturing output decreases in the food, beverage, and electronics sectors.

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