The Weekly Wrap – A Hawkish FED sends the Dollar Spot Index towards 100

Statistics

It was a quiet week on the economic calendar for the week ending April 08, 2022.

A total of 33 stats were monitored, following 64 stats the previous week.

Of the 33 statistics, 16 beat forecasts, with 14 economic indicators below forecasts. 3 statistics were in line with forecasts.

Looking at the numbers, 20 of the stats reflected an upward trend from previous numbers. Of the remaining 13 stats, 12 stats were weaker.

Hawkish chatter from FOMC members pushed dollar demand ahead of more hawkish-than-expected FOMC meeting minutes.

Outside the United States

During the first half of the week, the market focused on factory orders and service sector PMIs.

The statistics were mixed. Factory orders fell 0.5% in February, partially reversing a 1.5% rise from January, while activity in the services sector improved.

In March, the market-preferred non-manufacturing ISM PMI fell from 56.5 to 58.3.

On Thursday, unemployment insurance claims were also impressive. In the week ending April 1, initial unemployment insurance claims rose from 171,000 to 166,000.

Along with positive numbers for the dollar, the minutes from the FOMC meeting were also positive for the greenback mid-week. More hawkish minutes than expected boosted demand for the greenback. The minutes revealed plans to begin trimming the Fed’s balance sheet by $95 billion a month in an environment of rising interest rates to rein in inflation.

During the week ending April 8, 2022, the Dollar Spot Index rose 1.18% to end the week at 99.796. Over the previous week, the index fell 0.16% to 98.632.

Outside the UK

Private sector PMIs were positive for the pound.

In March, the services PMI fell to 62.6 from 60.5, down from 61.0 at the start. As a result, the composite PMI fell from 59.9 to 60.9, down from 59.7 at the start.

The construction PMI remained stable at 59.1 in March. Economists had forecast a drop to 57.8.

During the week, the pound fell 0.68% to end the week at $1.3025. The previous week, the pound fell 0.52% to $1.3114.

The FTSE100 ended the week up 1.73%, after gaining 1.06% from the previous week.

Outside the euro area

It was a busy week with markets focusing on service sector activity and the German economy.

German statistics gave mixed results. In February, Germany’s trade surplus widened from 8.9 billion euros to 11.5 billion euros, with industrial production up 0.2%. Factory orders, however, fell 2.2% to test support for the Euro.

Services sector PMIs were more upbeat. France and Germany saw a recovery in activity in the services sector, while Italy and Spain saw moderate activity. Despite this, the Eurozone services PMI fell from 55.5 to 55.6. Due to disappointing manufacturing data, the Eurozone composite PMI fell from 55.5 to 54.9.

On Thursday, the minutes of the ECB’s monetary policy meeting also sparked interest.

As expected, policymakers have considered reducing stimulus measures to curb inflation. The policymakers noted that “three forward guidance conditions for an upward adjustment of the key ECB interest rate had already been met or were about to be met.”

Despite the need to curb inflation, the war in Ukraine has left policymakers on a more cautious footing.

For the week, the EUR slipped 1.50% to $1.0877. The previous week, the Euro rose 0.55% to $1.1043.

The EuroStoxx600 rose 0.57%, while the CAC40 and DAX ended the week with losses of 2.04% and 1.13%, respectively.

For the loon

Trade, Ivey PMI and employment figures were the main statistics of the week.

It was a mixed bag for the Loonie, with Canada’s trade surplus dropping from C$2.62 billion to C$2.66 billion. The Ivey PMI numbers also impressed, rising from 60.6 to 74.2.

The employment figures for March were disappointing. Employment rose 72.5k after jumping 336.6k the previous month. Although the increase was modest, the unemployment rate fell from 5.5% to 5.3%.

The BoC’s Business Outlook Survey from the Bank of Canada reflects business concerns about inflation. About 35% of businesses expected inflation to exceed the Bank of Canada’s 2% target for 2-3 years, up from 31% of businesses in the fourth quarter.

During the week ending April 2008, the Loonie fell 0.40 to C$1.2572 against the greenback. Over the previous week, the Loonie was down 0.36% at C$1.2522.

Somewhere else

It was a bearish week for the Australian dollar and the Kiwi dollar.

The Australian dollar slipped 0.51% to $0.7458, with the Kiwi dollar slipping 1.13% to end the week at $0.6849.

For the Australian dollar

Economic data was limited to trade data, which was disappointing. In February, Australia’s trade surplus fell from A$12.891 billion to A$7.457 billion.

With lighter data, the RBA’s monetary policy decision and forward guidance did not provide support.

The lack of support came despite the RBA taking a more hawkish stance on spot rates. Rising house prices could force the RBA to raise interest rates more slowly than the FED.

For the kiwi dollar

There were no important statistics for the markets to consider, leaving the Kiwi Dollar on the defensive. Diverging monetary policies and weak private sector PMIs in China weighed.

For the Japanese yen

Household spending was hardly supportive of the yen, with spending falling a further 2.8% in February. In January, spending fell 1.2%.

The Japanese yen fell 1.49% to end the week at ¥124.34 against the dollar. The previous week, the yen ended the week down 0.39% at ¥122.52.

Outside of China

It was a quiet week on the economic data front, with statistics limited to service sector PMI numbers.

After disappointing manufacturing data, service sector data also painted a grim picture as China grapples with the latest COVID-19 breakout.

In March, the services PMI fell from 50.2 to 42.0.

During the week ending April 2008, the Chinese yuan fell 0.03% to CNY 6.3650. In the previous week, the yuan ended the week up 0.05% at CNY 6.3629.

The Hang Seng index ended the week down 0.76%, with the CSI300 dropping 1.06%.

This article originally appeared on FX Empire

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