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News

Euro Rises Amid Rate Hike Speculations

 

Thursday, September 01, 2022

The news shaping the markets today

Ukraine’s President Volodymyr Zelenskyy said the country’s military troops had attacked Russia’s positions along the entire front. WTI crude oil futures traded slightly lower on the news.


China’s general manufacturing PMI fell to 49.5 in August, from July’s reading of 50.4. The latest reading also missed the consensus estimate of 50.2, exerting pressure on the CNY/USD forex pair.


Australia’s total new capital expenditure declined 0.3% during the three months to June 2022, following a 0.4% rise in the prior quarter. The latest reading also missed market expectations of a 1.5% rise, sending the AUD/USD pair lower in forex trading this morning.


Japan’s manufacturing PMI improved to 51.5 in August, versus a preliminary reading of 51. The latest reading was still the lowest since September 2021, which exerted pressure on the JPY/USD forex pair.


Thailand’s manufacturing PMI rose to a record high of 53.7 in August, from July’s reading of 52.4. However, the THB/USD pair fell slightly in forex trading this morning.

 

What’s happening: The euro moved higher against the US dollar on Wednesday but ended the month with losses.

What happened: Speculations of the ECB adopting an aggressive rate-hike stance sent the EUR/USD forex pair back above parity on Wednesday.

However, fears of an energy crisis in Europe following news related to Russia resulted in the euro recording losses for the third straight month.

Why it matters: The Eurozone released data on Wednesday, which showed that the annual inflation rate had accelerated to 9.1% in August, from 8.9% in the previous month. The figure also came in above market expectations of 9%. The inflation rate surged to a new record high amid rising energy costs. Excluding food and fuel, inflation rose to 5.5% in August, from 5.1% in July.

Germany’s inflation rate also accelerated to its highest level in around 50 years in August.

The continuous rise in inflation fuelled prospects of a big rate hike by the ECB, especially after several central bank officials called for oversized rate increases to control inflation.

“The inflation rate is likely to leap upward in September,” Commerzbank analyst Christoph Weil said in a note to clients. “Consequently, the pressure on the ECB to continue raising interest rates significantly is likely to remain high.”

There are wide speculations of the ECB raising rates by 50 basis points, while some experts project a bigger 75 basis points hike.

On Wednesday, Russia halted gas supplies from the Nord Stream pipeline, raising concerns around an energy crisis in Europe. Markets remained concerned that gas flows through the pipeline may not resume after the end of the planned maintenance on Saturday.

The EUR/USD forex pair rose 0.4% to 1.0055 on Wednesday, recording gains for the third session in a row. However, the shared currency lost around 2% for the month.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, slipped around 0.1% to 108.70, after hitting a two-decade peak of 109.48 on Monday.

What to watch: Traders await the release of economic data on the unemployment rate and manufacturing PMI from the Eurozone today. The unemployment rate is expected to rise to 6.7% in July, from 6.6% in June. The S&P Global Eurozone manufacturing PMI is projected to slip to 49.7 in August, from 49.8 in July.

The markets today

Gold will be in focus today after closing lower on Wednesday

Context: Gold settled lower on Wednesday to deliver its biggest monthly loss since 2018.

Details: Inflation levels have climbed to multi-decade highs in several regions of the world, forcing central banks to aggressively tighten their monetary policies. Gold prices are sensitive to rising interest rates, as investors favour interest-yielding assets in a high-interest rate environment.

Data released Wednesday showed the Eurozone inflation rate climbing to a new record high, triggering speculations of aggressive rate hikes by the ECB. Markets also expect the US Federal Reserve to increase interest rates between 50 and 75 basis points at its meeting later this month.

December gold fell $10.10, or 0.6%, to settle at $1726.20 per ounce on Wednesday, reaching the lowest settlement since July 27. The yellow metal lost 3.1% in August, recording its fifth monthly decline in a row.

Silver for December delivery shed 40.5 cents, or 2.2%, to close at $17.882 an ounce, recording the lowest close since June 24, 2020. The white metal fell 11.5% in August.

December copper declined 3 cents to $3.52 a pound, while October platinum fell 0.6% to $827 an ounce and palladium for December delivery shed 0.4% to reach $2,078.90 an ounce.

What to watch: Traders await the release of jobs data from the US on Friday, which is expected to significantly impact gold prices. The US economy is expected to add 300,000 jobs in August, following a 528,000 gain in July. Analysts expect the unemployment rate to remain unchanged at 3.5% in July.

Other Markets: US indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.88%, 0.78% and 0.57%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 139.42 and 139.62 Positive
Nasdaq 100 – 12235.54 and 12339.56 Positive
Dow Jones – 31448.29 and 31644.69 Positive
CAC 40 – 6136.35 and 6172.99 Positive
WTI Crude Oil – 89.18 and 89.45 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0027, -0.28%) Dow ($31,414, -0.37%) Brent ($95.44, -0.2%)
GBP/USD (1.1586, -0.30%) S&P500 ($3,933, -0.60%) WTI ($89.38, -0.2%)
USD/JPY (139.54, 0.42%) Nasdaq ($12,165, -0.98%) Gold ($1,717, -0.5%)

What else to watch today

Germany’s retail sales and manufacturing PMI, Russia’s manufacturing PMI and money supply M2, UK’s Nationwide house price index and manufacturing PMI, Spain’s tourist arrivals, manufacturing PMI and total vehicle sales, Turkey’s manufacturing PMI and foreign exchange reserves, Italy’s manufacturing PMI, unemployment rate, gross domestic product, and car registrations, France’s manufacturing PMI and car registrations, South Africa’s manufacturing PMI and total vehicle sales, Mexico’s manufacturing confidence index and manufacturing PMI, US Challenger job cuts, initial jobless claims, unit labour costs, non-farm labour productivity, continuing jobless claims, manufacturing PMI, ISM manufacturing PMI, construction spending and natural gas stocks change, Brazil’s GDP growth rate, manufacturing PMI and balance of trade, as well as Canada’s value of building permits and manufacturing PMI.


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