The US dollar has marked significant appreciation

The world’s reserve currency was on a strong uptrend last week, reaching its highest level since September 2020. Investors were active buyers of the US dollar when the country’s equity indices corrected and the S&P500 was briefly down more than -6% on Friday from its all-time high reached the beginning of September.

USD

US economic data remained good and strong and pointed to continued positive sentiment among the population and businesses. The ISM purchasing managers’ index for the manufacturing sector stood at 61.1 points, up moderately from the previous month’s reading of 59.9. The country’s consumer price index (PCE) showed a 4.3% annual increase in August, pointing to continued price growth in the economy. The consumer confidence Index stood at 109.3 points and fell for the 4th consecutive month. Meanwhile, the real estate market remains strong and active and the house price index was 19.2% higher than in the same period a year ago, which is likely to contribute to high inflation rates in the coming months. The number of new jobless claims continued to rise from 0.351 million to 0.362 million during the week.

The global trend showed a further slowdown, with the weekly average of new cases falling from 482 to 434 thousand per day. North America and Asia continued to see a decline in the number of cases, while Europe stood out and showed an increase of around 8% per week. Only in the US did the data point to an emerging wave of cases, with the average dropping from 122 to 98 thousand per day. The number of vaccines administered increased from 389 to 395 million, with a change of 6 million, mainly due to the third dose. Overall in the US, the number of people vaccinated with at least one dose rose from 64.1% to 64.7% of the population, with a weekly increase of 0.6%. In Lithuania, the number of people vaccinated with at least one dose rose from 62.0% to 62.7%, a difference of 0.7%.

EUR

The main currency pair EUR/USD mirrored the trend of the US dollar and temporarily depreciated in the second half of the week to the level of 1.157, the lowest level since July 2020. Economic data on the Old Continent included the actual manufacturing purchasing managers’ indices, which stood at 58.4 points in Germany and 58.6 in Europe, both pointing to further growth. Germany’s preliminary September annual inflation rate was 4.1%, up from 3.9% in the previous month, while the country’s retail sales were 1.1% higher than a year earlier. Europe’s preliminary annual inflation rate was 3.4%. German labour market data showed positive trends, with the number of unemployed declining by 30 thousand in September and the unemployment rate at 5.5%. The EUR/USD pair ended the week’s trading down -1.1%.

JPY

The most important Asian pair USD/JPY appreciated in the first half of the week and reached the level of 112.0, but later depreciated to 111.0 points. The data included August industrial production, which showed a 9.3% year-on-year rise, and retail sales, which were -3.2% lower than a year earlier. The actual purchasing managers’ index was 51.5 points. USD/JPY ended the week trading up 0.3%.

GBP

The British pound/US dollar pair moved in tandem with the currency market and was briefly depreciated to the level of 1.342 on Wednesday. No important economic data were released. GBP/USD ended the week’s trading down -1.0%.

Economic Events

This week will start quietly and no important data is scheduled for Monday. On Tuesday, the actual purchasing managers’ indexes for the service sector will be released and US international trade data will be expected. On Wednesday, European retail sales will be watched, Thursday will be quite quiet, but on Friday investors will be focused on the US labour market indicators.

According to Admiral Markets market sentiment data, 81% of investors have long positions in the EUR/USD pair (up +11 percentage points compared to last week). In the main Asian pair USD/JPY, 24% of investors have long positions (up +15 percentage points). In GBP/USD, 56% of participants expect a rise (down -12 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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