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US dollar rises despite inflation, jobless claims

 

Friday, August 11, 2023

Today’s headlines

What’s happening: The US dollar edged higher on Thursday, as investors assessed major economic reports.

What happened: The greenback came under pressure in early trading on Thursday, following the release of data on US consumer prices and jobless claims.

However, the US dollar pared losses and moved higher later in the session, hitting a five-week high against the Japanese yen.

Why it matters: The US dollar slipped into the red in early trading on Thursday, after data showed consumer prices increasing modestly in July and jobless claims rising.

The Labor Department said the annual inflation rate rose to 3.2% in July, from 3% in the prior month. However, the figure came in better than market estimates of 3.3%. Inflation has continued to decline from the peak of 9.1% reached last year. The monthly inflation rate was reported at 0.2% for July, in-line with market views.

Monthly core consumer prices, excluding volatile food and energy items, increased 0.2% in July, matching the previous month’s rise, while the annual core consumer price inflation rate eased to 4.7%, from 4.8% in June.

The data release fuelled speculations of the Federal Reserve halting rate hikes for the rest of the year, exerting pressure on the US dollar.

Another report from the Labor Department showed initial jobless claims rising 21,000 to 248,000 in the week ended August 5, higher than market estimates of 230,000.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained slightly to reach 102.52 on Thursday, after falling to as much as 101.78 earlier in the session.

The USD/JPY climbed around 0.7% to 144.76. The forex pair has added more than 10% so far this year. The GBP/USD pair fell around 0.3% to 1.2675.

What to watch: Traders await the release of PPI data from the US today, which is expected to significantly impact the greenback. Producer prices for final demand in the US, which rose 0.1% in June, are expected to increase 0.2% in July. Annual producer inflation had slowed to 0.1% in June and is projected to accelerate to 0.7% in July.

The University of Michigan consumer sentiment data will also remain in focus, with analysts projecting a decline to 71.3 for August, from a reading of 71.6 in July.

The markets today

Alibaba Group Holding Limited will be in focus today after releasing its quarterly results

Context: US-listed shares of Alibaba settled higher on Thursday, after the company reported better-than-expected first-quarter results.

Details: The Chinese ecommerce giant reported its strongest quarterly revenue growth in around two years.

Alibaba’s quarterly revenues surged 14% year-over-year to 234.16 billion yuan, topping the consensus estimates of 224.92 billion yuan. The company’s net profit jumped 51% year-over-year in the quarter.

Taobao and Tmall Group’s revenues rose 12% year-over-year, while Alibaba International Digital Commerce Group’s sales climbed 41%. Revenues of Digital Media and Entertainment Group, Cainiao Smart Logistics Network Limited, and Cloud Intelligence Group rose by 36%, 34%, and 4%, respectively.

Alibaba generated free cash flows of $5.4 billion and closed the latest quarter with $80.6 billion in cash and equivalents.

Despite Alibaba’s strong report, investors remained concerned about the recovery of the Chinese economy, which has stalled after exhibiting a rebound earlier this year.

Alibaba’s US-listed shares gained 3.7% to close at $99.21 on Thursday. The stock has added around 8% over the past month.

What to watch: Investors will watch rising competition from peers, like PDD Holdings, Pinduoduo and ByteDance’s Douyin. Markets will also monitor the recovery of China’s economy.

Other Markets: European indices closed higher on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.41%, 0.91%, 1.52% and 0.79%, respectively.

The news shaping the markets

Ukraine announced it will open a ‘humanitarian corridor’ for ships trapped in the Black Sea ports since the outbreak of war. The news sent the safe-haven US dollar index slightly higher this morning.


China’s vehicle sales declined 1.4% year-over-year to 2.387 million units in July, versus 0.14% growth in the prior month, exerting pressure on the CNY/USD forex pair.


Singapore’s GDP expanded by 0.5% year-over-year in the second quarter, following 0.4% growth in the prior quarter, which sent the SGD/USD pair higher in forex trading this morning.


New Zealand’s BusinessNZ Performance of Manufacturing Index fell by 1.1 points to 46.3 in July, exerting pressure on the NZD/USD forex pair.


Bank of Mexico held its benchmark policy rate at a record high of 11.25% at its August meeting, which sent the MXN/USD pair higher in forex trading this morning.

What else to watch today

France’s unemployment rate and consumer price inflation, UK’s GDP, goods trade balance, industrial production, business investment, manufacturing production, balance of trade, construction orders and construction output, Spain’s inflation rate and consumer confidence indicator, Turkey’s retail sales and current account, Italy balance of trade, India’s deposit growth, foreign exchange reserves, value of loans, industrial production and manufacturing production, Brazil’s inflation rate, IBC-Br Index of economic activity and industrial entrepreneur confidence index, Mexico’s industrial production, Germany’s current account, Russia’s balance of trade and gross domestic product, US Baker Hughes crude oil rigs, as well as China’s total vehicle sales, new yuan loans, outstanding yuan loans, total social financing and money supply M2.


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