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The Euro empire strikes back
The dollar retreated from up high hitting session lows across the board after the Federal Reserve reinforced market belief that the US economy was slowing down. Investors started to reduce their bets onto the US currency as expectations waned that US interest rates would be peaking.
In fact, the Beige Book stated that the US economic activity showed an overall growth between June to mid-July did nothing to calm down the eagerness of investors to sell the US currency. However, other economic indicators pointed out to a major slowdown in economic activity resulting in the possible scenario that the Federal Reserve might be pausing with its interest rate tightening campaign next month. Futures markets pared back their expectation of an 18th interest rate hike next month to only 46 percent from 54 percent before in the Beige Book.
Premature to rule out US interest rate hikes </B>
Despite solidly negative dollar sentiment, the US currency hanged in the middle of its range against the euro for the past month. Some analysts still believe that it was still premature to rule out more US interest rate hike in the future. Towards the middle of the week a series of strong data buoyed the dollar. Jobless claims fell below 300,000 and in a government report for durable goods, big-ticket items meant to last over 3 year, showed robust pick-up.
The US dollar traded at MUR 31.585 yesterday, compared to MUR 31.554 last week.
The Sterling gained in most sessions after strong economic data released during last week trading. Above-forecast inflation and economic figures sparked off talk that the Bank of England might hike UK’s interest rates up to 4.75 percent as early as August 3rd. Furthermore, better-than-expected mortgage approval data added to the recent strength in the pound.
According to the British Banker’s Association the number of mortgage approvals for home purchases in Britain rose 22 percent in June from a year ago, indicating that home prices would keep on rising.
The Sterling was traded at MUR 59.36 as against MUR 58.76 last week
The yen had been pretty much range bound against the US currency. Most investors were still focussing on the interest rate differentials and whether the US FED would pause in its tightening campaign in August. On the other hand, the Bank of Japan Policy Board member Miyako Suda reiterated last Wednesday that the BoJ’s mantra was to raise interest rates only gradually. The BoJ only ditched its zero rate policy and raised the key overnight call rate to 0.25 percent earlier this month, the first hike in six years.
Towards the end of the week, the yen gained against the US currency on electronic trading platform EBS, as rumor had it that two prominent US senators stepped up pressure on Beijing to allow the yuan to appreciate faster. Furthermore, speculation had risen that China was tolerating more currency strength to cool the economy’s red-hot pace of growth. The yen is often traded as a proxy to the tightly managed yuan.
The yen was sold at MUR 27.82 as compared to MUR 27.30 last week.
<B>Vassan Caleemootoo
HSBC Mauritius Treasury </B> and Capital Markets</B>
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