Market Drivers – US Session, August 21

Although a sparse macroeconomic calendar kept key pairs at known levels, the US dollar lost some gain on Monday. While government bond yields increased, reflecting the prevailing cautious approach, market sentiment remained negative. Investors’ concerns that global central bankers will continue their monetary tightening programmes to control inflation caused the US Treasury yield to spike to its highest level since 2007.

As speculative investors awaited a more forceful step to support the local currency, the Yuan declined in response to the news. Later in the day, UBS reduced its prediction for China’s real GDP growth in 2023 from 5.2% to 4.8%.

News reports indicate that government land sales revenue decreased in China for the 19th straight month in July, keeping the country at the centre of the storm. Following similar actions last week and falling short of expectations for greater actions, China’s central bank reduced the one-year Loan Primer Rate by 10 basis points (bps) to 3.45% on Monday. This was expected and follows similar actions last week.

Inflation may remain above the central bank’s forecasts for longer, according to the German Bundesbank’s monthly report, while Q3 growth is expected to be virtually unchanged.

The EUR/USD suffers near 1.0900 because it lacks the momentum to move past the mark. At about 1.2740, the GBP/USD exchange rate is more favourable for extending gains.

In comparison to the American Dollar, the Australian Dollar increased, and gold prices rose as well, though they remained below $1,900. The USD/CAD edged higher as a decline in oil prices weighed down the Canadian dollar.

The dollar/yen exchange rate is trading above 146.00 and close to its most recent multi-month high of 146.53 amid growing expectations that the Bank of Japan would soon need to modify its ultra-loose monetary policy.

The Jackson Hole Symposium, which begins next Thursday, is the main event on the economic calendar this week. Friday’s speeches by Christine Lagarde, President of the ECB, and Jerome Powell, Chair of the Federal Reserve (Fed), will be watched closely by market participants for hints about upcoming actions.

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