US dollar hits 20-year high on Powell’s comments

The news shaping the markets today

With continued shelling at the Ukrainian nuclear power plant, the operator issued a risk warning of a radioactive leak. WTI crude oil futures traded higher on the news.

Australia’s retail sales grew by 1.3% to a new record high of A$34.67 billion in July, following a 0.2% increase a month ago. Despite this, the AUD/USD forex pair remained under pressure due to strength in the US dollar.

Qatar’s trade surplus widened to QAR 34.8 billion in July, from QAR 19.5 billion in the year-ago period. This being the biggest trade surplus since March 2014 sent the QAR/USD pair slightly higher in forex trading this morning.

Vietnam’s retail sales jumped 50.2% year-over-year in August, following a 42.6% increase in the previous month. This being the ninth consecutive month of growth in retail trade lent support to the VND/USD forex pair.

Canada reported a government budget surplus of C$4.88 billion in June, compared to a year-ago deficit of C$12.71 billion. The CAD/USD pair declined in forex trading this morning.

What’s happening: The US dollar moved higher on Friday, following comments from Federal Reserve Chairman Jerome Powell.

What happened: Although the Fed chief didn’t suggest the extent of the next rate hike by the central bank, he stuck to a hawkish tone in the combat against surging inflation in the US.

Traders now await labour market data to offer more insight into the state of the economy and the leeway available to the Fed to hike rates.

Why it matters: The US dollar dipped in early trading on Friday after data showed personal spending in the country rising just 0.1% in July, following a 1% surge in June. The data also came in below expert estimates of 0.4%. The personal consumption expenditure price index declined 0.1% in July, after increasing 1% in the prior month.

Other data on Friday showed an improvement in the University of Michigan consumer sentiment to 58.2 in August, versus a preliminary reading of 55.1.

During his speech at the Jackson Hole economic symposium, Jerome Powell said that the Fed remains committed in bringing down inflation to the 2% target and the country needs tight monetary policy to bring inflation under control.

The Fed Chair didn’t give any indication of how far the bank might go in raising rates to combat inflation. The central bank had lifted the fed funds rate by 75bps during its July meeting, which was its fourth straight rate increase.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, rose 0.32% to 108.81 on Friday, after declining to 107.54 earlier during the session. Although the index remains below the five-week high of 109.27 recorded on Tuesday, it has been hovering near the 20-year high of 109.29 hit on July 14.

The EUR/USD forex pair fell 0.14% to 0.9962 on Friday but was up from a 20-year low of 0.99005 recorded on Tuesday. The USD/JPY forex pair also added 0.66% to reach 137.40 on Friday.

What to watch: Traders will keep an eye on jobs and inflation data for August, which are scheduled to be released before the Fed’s September meeting and will play a major role in determining the extent of the next rate hike.

The markets today

Crude oil will be in focus today after recording gains on Friday

Context: Oil futures settled higher on Friday amid talks of output cuts by major oil producers.

Details: Crude oil prices had remained under pressure earlier on Friday, after Federal Reserve Chair Jerome Powell maintained a hawkish stance in the country’s fight against inflation, suggesting the central bank would continue its aggressive rate hikes.

However, talks of potential output cuts by the OPEC+ (Organization of the Petroleum Exporting Countries and their allies), despite prospects of higher energy demand in the near term, provided support to oil prices later in the session.

Sources indicated that the cartel plans to lower production in case Iran returns to the global oil market following a new nuclear deal.

The data released Wednesday from the US also showed a decline in crude oil inventories for the latest week, supporting oil prices.

WTI crude for October delivery added 54 cents, or 0.6%, to close at $93.06 per barrel on the NYMEX on Friday. Oil prices ended the week higher by around 2.9%. October Brent crude oil contract rose 1.7% to settle at $100.99 per barrel on ICE Futures Europe, gaining around 4.4% last week.

In other energy trading, September gasoline gained 1.4% to reach $2.8513 per gallon, down 5.5% last week, while natural gas for September delivery finished at $9.296 per million British thermal units, down 0.8% on Friday and about 0.4% for the week.

What to watch: Traders await the API’s (American Petroleum Institute) data on crude oil stockpiles, scheduled for release on Tuesday. US crude oil inventories contracted by 5.6 million barrels during the week ended August 19, following a decline of 0.4 million barrels in the earlier week.

Other Markets: European trading indices closed lower on Friday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.70%, 2.26%, 1.68% and 1.68%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Turkey’s balance of trade and economic confidence index, Brazil’s value of loans, nonfarm payrolls and Central Bank of Brazil’s focus market readout, as well as US Dallas Fed manufacturing index.