FX Talk - an Ebury podcast Ebury FX Talk

In recent weeks, the USD has performed well largely due to safe-haven flows, which came about because of investors' concerns about economic slowdown in China. The slowdown is being evidenced by disappointing data like GDP,  PMI, retail sales, and industrial production, along with issues in the property sector. On the other hand, the US economy has shown great strength, with a healthy labour market and impressive growth indicators. In contrast, the Euro and Sterling have fallen from their highs against USD. Last week's business activity PMI data from the UK and EZ have been underwhelming and have fallen into contraction, indicating further economic difficulties.

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Our FX 101 series provides a strong foundation of knowledge and terminology to better understand the more in-depth discussions and analysis covered in our regular episodes of FX Talk. By offering a range of topics and insights, FX 101 helps you build a solid understanding of FX and its complexities, and ultimately serves as a starting point in doing business without borders.

 This episode will cover:
1. Understanding exchange rates
2. Floating systems
3. Fixed exchange rates
4. Impact of Central Banks

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August is typically a quiet month in the financial markets as investors often take a break, seeking sunnier climates elsewhere. In consequence, volatility can be relatively low, and currency trades tend to be narrower due to the lack of substantial economic news or announcements. Predicting whether this pattern will follow suit this year is challenging without a definitive forecast. However, it's notable that there remains plenty for the markets to consider and for us to discuss.
Over the past few weeks, headlines have been dominated by the meetings of the G4 central banks, namely the U.S. Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England. As anticipated, the Federal Reserve raised rates by another 25 basis points at its July meeting. This comes after offering indications that it may cease raising rates, following evident signs of U.S. inflation easing. In the same vein, the European Central Bank adopted an unexpectedly dovish stance. Notably, Lagarde refrained from committing to any hikes, suggesting a potential pause from September onwards.

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The past fortnight has been eventful with high volatility observed in both Emerging Markets (EM) and major currencies. The significant development was a sharp decline in the US Dollar (USD). Indeed, the USD Index reported one of the largest weekly sell-offs since the Global Financial Crisis.
Investors reacted to a less-than-expected set of US inflation figures. The headline inflation dropped to 3% in March 2021, while the core inflation decreased to below 5% in November 2021.
The sell-off in the USD can be attributed to increased market expectations that the Federal Reserve might halt interest rate hikes by this summer. The expectation currently stands at a 25 basis point hike in July, with the date projected for 26/07. However, indications suggest this could be the last hike in the current cycle, with futures showing a 1-in-4 chance by November.

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Our FX 101 series provides a strong foundation of knowledge and terminology to better understand the more in-depth discussions and analysis covered in our regular episodes of FX Talk. By offering a range of topics and insights, FX 101 helps you build a solid understanding of FX and its complexities, and ultimately serves as a starting point in doing business without borders.

 This episode will cover:
1. Explanation of GDP and its importance.
2. Methods to calculate GDP.
3. Components of the Expenditure Approach.
4. Impact of GDP on foreign exchange.
5. Timely indicators and labor market data.

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Recording during a relatively calm period in the foreign exchange market. Most major currencies are experiencing narrow ranges, partly due to the summer season and national holidays, including Independence Day on July 4th in the US. Typically, summers are quieter for currency markets, but they haven't been completely inactive recently. Central bank leaders have taken a generally hawkish stance, as seen at the meeting in Sintra, Portugal. Powell has reiterated the possibility of a couple more rate hikes in the US without any cuts in the near term. Lagarde has practically confirmed an ECB hike in July. In other news, the Australian dollar has rebounded despite the unexpected decision by the RBA to hold rates unchanged in their July meeting. Meanwhile, the yen has approached new lows despite speculation that Japanese authorities may intervene in the FX market (more on that in a later episode). However, the primary focus of this week's episode will be on emerging markets.

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