The US dollar continues its uptrend

Last week the US dollar maintained its positive sentiment and appreciated against other currencies. The World Reserve Currency index rose to its highest level in over a month, although the overall sentiment in the financial market remains positive and the major equity indices are trading around all-time highs, while bond yields are rising moderately.

USD

US economic data remained strong. The country’s August inflation rate, which showed a 5.3% annual increase in prices, was the main focus of attention. Inflation remains high, despite central bank comments that the rise in prices is temporary and this is just a transitory phase. Another important indicator was retail sales volumes in August, which rose by 13.5% year-over-year and were slightly slower than in the previous month. Industrial production volumes were 6.0% higher than in the same period a year ago. The University of Michigan Consumer index was 71.0 points, which was around its lowest level since 2012. New jobless claims rose marginally from 0.310 to 0.332 million on the week.

The momentum of the pandemic continued to slow and the global average of new cases fell from 552 to 533 thousand per day. The situation in the US fluctuated slightly and was fairly stable, with the weekly average of cases hovering around 148 thousand per day. The number of vaccinations administered increased from 379 to 383 million, with a change of only 4 million. Overall in the US, the number of people vaccinated with at least one dose rose from 63.0% to 63.5% of the population, with a weekly increase of 0.5%. In Lithuania, the number of people vaccinated with at least one dose rose from 60.8% to 61.5%, a difference of 0.7%. In England, the number of cases slowed moderately from 37 to 29 thousand per day.

EUR

The major currency pair EUR/USD consolidated above the level of 1.180 in the first half of the week, but continued to fall since Thursday and ended trading at the level of 1.173. Economic data in the Old Continent were scarce. Among the most important weas industrial production, which increased by 7.7% year-on-year. The EUR/USD pair ended the week’s trading down -0.7%.

JPY

The most important Asian pair USD/JPY maintained its consolidative mood. It depreciated to a one-month low at the beginning of the week, but later recovered its losses and ended the trading session marginally changed at the 50-day moving average on the daily chart. Data included the producer price index, which showed a 5.5% increase and remained stable at its highest level since 2008. Industrial production in July was 11.6% higher than a year earlier, while exports in August were up by as much as 26.2% year-on-year. USD/JPY ended the week unchanged.

GBP

The British pound-US dollar pairing reflected the general sentiment of the currency market. After briefly rising to the level of 1.391 on Tuesday, it then depreciated sharply and ended the week at the level of 1.374. Among the data were labour market indicators, which showed an 8.3% annual increase in average wages, while the number of unemployed fell by 58 thousand and the unemployment rate inched lower to 4.6%. Annual inflation in August was 3.2% and retail sales were unchanged from a year earlier. GBP/USD ended the week down -0.7%.

Economic Events

This week will start rather quietly with the German producer price index being watched and no important data scheduled for Tuesday. Wednesday will start with the Bank of Japan’s central bank meeting and press conference, followed by the release of the US existing home sales figures and the minutes of the US central bank’s last meeting, where investors will be looking for clues on further monetary policy. Thursday will see preliminary purchasing managers’ indices and the Bank of England’s meeting. On Friday, attention will turn to Japanese inflation figures and US new home sales figures.

According to Admiral Markets market sentiment data, 85% of investors have long positions in the EUR/USD pair (up +20 percentage points compared to last week). In the main Asian pair USD/JPY, 24% of investors have long positions (down -25 percentage points). In GBP/USD, 83% of participants expect a rise (up +43 percentage points). Such market data is interpreted as a contrarian indicator, and therefore EUR/USD and GBP/USD are expected to fall, while USD/JPY is expected to appreciate. The analysis of positioning data should be combined with fundamental projections and technical analysis.

Source: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com

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