Stable Dollar Benefits Norway’s Crown, Weakens Chinese Yuan.

Introduction

Inflation numbers have played a significant role in shaping the market dynamics. While the stable dollar has helped bolster Norway’s crown, it has simultaneously weakened the Chinese yuan. This article explores the impact of inflation data and highlights the reactions of different currencies to recent economic developments.

The Dollar Stabilizes Amid Poor Chinese Inflation Data

Dollar Index Recovers after Weak Job Growth Report

The dollar showed signs of stabilization on Monday, recovering from a knee-jerk reaction triggered by Friday’s data that revealed the weakest job growth in 2-1/2 years in the United States. The dollar index, a measure of the currency’s value against significant competitors, climbed by 0.13% to 102.4. This recovery came after a 0.87% fall on Friday following the news that the U.S. economy added 209,000 nonfarm jobs in June, missing market forecasts for the first time in 15 months.

Reassurance from Employment Report

The employment report data provided some reassurance to the markets, indicating that the Federal Reserve’s rate hike program is nearing its end. While rate cuts anticipated for later in 2023 now seem unlikely, strong wage growth highlighted in the report implies the possibility of another rate hike in the near future.

Currency Reactions: Dollar, Euro, and Yen

Widespread Impact of Friday’s Events

Both the dollar’s decline on Friday and its subsequent recovery on Monday were felt across various currencies. The euro experienced a slight decrease of 0.08%, reaching $1.0953 after a 0.7% increase on Friday. The dollar, on the other hand, surged by up to 0.55% against the Japanese yen, ending at 142.31, with the yen falling due to an overreaction to the non-farm payrolls number.

Sterling’s Movement

Among the currencies, sterling displayed more significant movement. After rising 0.79% the previous day to a 15-month high of $1.2850, it fell by roughly 0.5% on Monday, reaching $1.2780.

Focus on U.S. Inflation Data and Central Bank Policies

Anticipation of U.S. Inflation Data

With the spotlight now on U.S. inflation data scheduled for release on Wednesday, market predictions suggest a 5% increase on an annual basis in the core Consumer Price Index (CPI) for June. This data holds great importance for markets, particularly with regard to central bank policies, especially that of the Federal Reserve.

Norwegian Crown Gains Momentum

Despite being the second-worst performing currency among the G10 this year, the Norwegian crown experienced a gain in value following data indicating increased core inflation in June, reaching a new record high. The euro slid by 0.88% against the pound, falling to 11.544, the lowest level since mid-June. Analysts at MUFG predict that the Norges Bank will face pressure to implement a 50 basis points boost at their next policy meeting on August 17th due to the unfavorable path for core inflation and the weak krone.

Challenges for the Chinese Economy

Contrasting with Norway’s positive news, factory-gate prices in China experienced the quickest decline in seven and a half years in June, while consumer inflation reached its lowest level since 2021, as revealed by statistics released on Monday. These figures have raised expectations for additional assistance measures from Chinese authorities.

Impact on Australian and New Zealand Dollars

The Australian and New Zealand dollars, often seen as liquid proxies for the Chinese yuan, were adversely affected by these dismal statistics. The New Zealand dollar dropped 0.4% to $0.6185, while the Australian dollar declined by 0.72% to $0.663. Additionally, the US dollar rose approximately 0.1% against the offshore yuan, reaching 7.239.

Manufacturing Pressures and Domestic Demand

OCBC currency strategist Christopher Wong noted that the decline in the Producer Price Index (PPI) highlights the pressures faced by the manufacturing sector, while the lower Consumer Price Index (CPI) continues to indicate poor domestic demand.

Conclusion

Inflation data continues to play a crucial role in shaping the performance of different currencies. The stable dollar has provided support to Norway’s crown while weakening the Chinese yuan. With market focus shifting to upcoming U.S. inflation data, central bank policies, particularly that of the Federal Reserve, will be closely monitored. As the global economy navigates through various challenges, currency dynamics will remain a key area of interest for investors and economists alike.