Morning Market Review
The European currency shows mixed trading dynamics, consolidating near 0.9960. Market activity remains low ahead of US Federal Reserve Chairman Jerome Powell's speech at the annual symposium in Jackson Hole. It is expected that the official may speak in favor of raising the interest rate in September by another 75 basis points (for the third time in a row), which will provide moderate short-term support to the US currency. Investors have no doubt that the regulator will continue a rather tight monetary policy, so the whole question is only in the pace of this tightening. Also, traders would like to hear updated forecasts regarding the prospects for economic growth. The global economy continues to show a steady downtrend, and the widespread increase in interest rates is only exacerbating the situation caused by rising energy prices. In particular, it became known that a number of large industrial enterprises in Europe (zinc and aluminum plants) were forced to temporarily close due to a sharp increase in electricity tariffs. In turn, the euro was moderately supported yesterday by optimistic macroeconomic statistics from Germany. The revised indicator of Gross Domestic Product (GDP) reflected the growth of the German economy in the second quarter by 0.1% (previously, zero dynamics were assumed), and excluding seasonal fluctuations, GDP in annual terms grew by 1.7% against the previous estimate of 1.4%. In turn, the index of Economic Expectations from the IFO in August fell by only 0.1 points to 80.3 points, while forecasts suggested a fall to 79.0 points.
The pound is trading with a downtrend, testing the level of 1.18 for a breakdown. The British currency slightly strengthened the day before, which, however, was caused only by technical factors, as well as expectations that the Bank of England will continue to tighten its monetary policy. The Governor of the regulator, Andrew Bailey, announced his readiness to adjust the interest rate to fight inflation, despite the fact that as early as the fourth quarter, the national economy could enter a recession, the risks of which increase against the backdrop of an intensifying energy crisis, which could turn into a full-fledged industrial one. Due to high prices, many enterprises are forced to reduce production rates or temporarily close, while with the onset of cold weather, conditions can worsen even more. The situation is aggravated by the uncertainty brought about by the forthcoming elections of the British Prime Minister scheduled for autumn.
The New Zealand dollar shows a moderate decline, correcting after an attempt to grow the day before, which led to a short-term update of local highs from August 19. The uptrend was not hindered by weak macroeconomic data from New Zealand, released yesterday. Retail Sales fell 2.3% in the second quarter, after falling 0.9% in the prior period, and Retail Sales excluding Autos fell 1.6% after falling 0.3% a quarter earlier. At the same time, the statistical picture from the USA turned out to be mixed. Revised annual data on Gross Domestic Product (GDP) in the second quarter showed a decline of 0.6%, which was significantly better than the previous estimate of –0.9%. At the same time, the Gross Domestic Product Price Index for the same period was revised upward from 8.9% to 9.0%, while the forecast was for a decrease to 8.7%. This means that inflationary risks in the country remain high, and therefore the US Federal Reserve may continue to tighten monetary policy at a record pace. The instrument is slightly supported today by the statistics from New Zealand: the ANZ Roy Morgan Consumer Confidence in August rose noticeably from 81.9 points to 85.4 points, which turned out to be better than the average analysts' expectations.
The US dollar shows weak growth, consolidating above 136.8. The American currency is trying to win back the corrective losses incurred the day before; however, investors are in no hurry to open new positions ahead of the speech of US Federal Reserve Chairman Jerome Powell at the annual symposium of representatives of leading central banks in Jackson Hole. Moderate support for the yen today is provided by optimistic macroeconomic statistics from Japan. Tokyo Consumer Price Index in August accelerated from 2.5% to 2.9%, while analysts expected the same growth rates to be maintained. CPI excluding Fresh Food accelerated from 2.3% to 2.6%, 0.1% ahead of market forecasts. Excluding Food and Energy prices, the index rose from 1.2% to 1.4%, falling short of the expected 1.5%. Thus, the situation in a country accustomed to deflationary phenomena in the economy may soon change. Rising consumer prices potentially mean that the Bank of Japan may reduce the pace of stimulus, and in the longer term, even decide to raise interest rates.
Gold prices practically do not change, consolidating near 1755. The day before, the instrument made an attempt to grow, and the XAUUSD pair managed to update local highs from August 18, but failed to consolidate at new levels. Investors tend to stay out of the market until comments from US Federal Reserve Chairman Jerome Powell, who will give a speech at the annual symposium in Jackson Hole today. The official is expected to confirm a further increase in the interest rate by 75 basis points. If the pace of monetary tightening is reduced to 50 basis points, this may put short-term pressure on the positions of the US currency, and will also mean that the regulator is concerned about the risks of a recession in the national economy, which could provoke an increase in alarming sentiment across the entire spectrum of the market.