USD Back in Demand As Traders Await Powell on Friday

Following steady buying across last week, the US Dollar is back in demand over the European open on Monday. On the back of better data recently and supportive Fed commentary, traders are flooding back into buying the greenback as we head towards the September FOMC. Despite a softer July CPI reading, Fed members last week were seen voicing support for a further 75bps hike in September.

This week we see another round of key US data which is likely to create plenty of USD volatility. Along with tomorrow’s PMI readings, the rest of the week will see preliminary GDP and core PCE data. Finally into the end of the week, attention will shift to Fed’s Powell who speaks at this year’s Jackson Hole symposium.

Key Factors for Today

- USD back in demand as traders eye further 75bps hike in September
- Equities plunging on strong USD and recession fears linked to China economic concerns
- UK and European stocks falling on inflation fears and rate hike expectations
- USD and JPY leading in FX, EUR and GBP weakest

Coming up

-Quiet data sheet today

-EUR German buba monthly report

- CAD NHPI monthly

Equities Indices Falling on Recession/Inflation Concerns Globally

We saw key indices falling back last week as the US Dollar rally stepped up a level on the back of the FOMC minutes. Asian markets were seen performing a little better on the back of the PBoC announcing a reduction in its 1- and 5-year lending facilities. However, with concerns rising over the health of the Chinese economy, yet another round of stimulus seems to be simply sharpening the view that China is heading for a slowdown this year.

Russia suspends gas through Nordstream 1 pipeline

In the UK and Europe, stock prices continue to be hurt by rising gas prices. The announcement from Russian that it will be suspending Nord stream flows for three days at the end of this month serves as a sharp reminder of the ongoing threat from Russia. With inflation still surging in the UK and Europe, expectations of further central bank tightening are keeping stock prices anchored firmly lower in the near term.

Safe-Havens Leading in FX

In FX, USD and JPY have been the better performers across late Asian and early European trading on Monday. Safe-haven demand amidst falling stock prices and rising global recession fears is driving FX action as we start the new week. EUR and GBP are among the weakest performers. With inflation still surging higher in the UK and the Eurozone, growth fears are leaning on sentiment for EUR and GBP once again this week. The net round of PMI data releases tomorrow will be the next glimpse into how both the factory and non-factory sectors are performing and might fuel further selling if weakness is seen.