The NZD and AUD end the day as the strongest of the major currencies. The JPY is the weakest. The central bank’s latest decision came before the U.S. opening, when the Bank of Japan kept rates unchanged but said it would consider an easy exit from policy 1. 2% inflation. was in sight and that the sustainability of wage increases was the most important thing for the economy. inflation outlook.
The end of the day for the USD was mixed with gains against the JPY (+0.55%), GBP (+0.45%), CHF and EUR, and losses against the NZD (- 0.49%), the AUD (-0.41%). The greenback remained almost unchanged against the CAD.
For the trading week, the dollar index closed the week slightly up +0.27%. The DXY is a weighted currency index heavily weighted in EUR (57.6%), JPY (13.6%) and GBP (11.9%).
Looking at the major indexes against the US dollar, the green was mixed.
The USD was stronger against:
- EUR, +0.16%
- JPY, +0.38%
- GBP, +1.15%
- CHF, +1.07%
The USD was weaker against:
- CAD, -0.33%
- AUD, -0.21%
- NZD, -1.08%
Against the offshore yuan, the USD rose 0.27% this week.
The Federal Reserve this week kept rates unchanged at 5.5%. However, they maintained expectations for further tightening for 2023 and raised the year-end expected rate for 2024 to 5.1%, from 4.6% in June.
In the UK, the Bank of England started the week with traders expecting a 25 basis point hike. However, after lower-than-expected inflation data on Wednesday, the chances of a hike fell to 50/50. The Bank of England kept rates unchanged by a margin of 5 votes to 4. This helped weaken the pound against the dollar this week.
The Swiss National Bank was also expected to raise rates by 25 basis points at its quarterly meeting, but it too kept rates unchanged, helping to weaken its currency against the U.S. dollar this week.
In the US debt market this week, yields rose for the third week in a row as traders priced in “higher and longer” rates for the federal funds target:
- The 2-year yield rose 7.5 basis points to 5.112%.
- The 5-year yield rose 10.2 basis points to 4.569%
- The 10-year yield rose 10.4 basis points to 4.438%
- The 30-year yield rose 11.1 basis points to 4.529%.
Even though the long-term portion has increased the most, the gap between 2 and 10 years still remains at -67 basis points, signaling a coming recession. The 2 – 10 year spread has been negative since July 2022, reaching a low of -109 basis points in July 2023. Will it ever become positive? If the Fed stays high for longer, the logical path would be for the long end to rise. The problem is that mortgage rates are already at 7.40%. If the 10-year yield rises another 67 basis points, that means mortgage rates will rise more than 8%, all else equal. This would truly push the U.S. economy into a recession, which would then cause short-term rates to fall as the Fed would be forced to ease policy.
A recession seems to be the only way out of the negative yield curve.
On the American stock market, the S&P and NASDAQ indices experienced their worst week since March this week. With the NASDAQ index falling by 3.62%. The S&P fell -2.93%.
Crude oil prices closed this week down -0.54% or -$0.48 after hitting their highest level since November 2022 at $92.43.
Spot gold rose $1.37 or 0.07% (let’s call it unchanged). Silver rose by $0.52 or 2.276%.
There are still a few big stories left to resolve, including:
- The auto workers’ strike
- The possibility of a government shutdown at the end of the month
Each of these issues will be resolved at some point. The question is when and at what cost. On the economic front, US PCE data will be released next Friday, with core PCE expected to increase by 0.2%.
Adam is back next week. Thank you for your support and tolerance this week. I hope you have a good weekend.
Go Ducks beat the Buffs.
Go Tigers beat the Seminoles.