Finally, we had a relatively quiet week in the markets, and these are very rare in 2023. It was mostly a continuation of recent trends, with the USD and interest rates creeping higher and equities falling.

The US dollar continued its strong form and now has almost two months of linearly higher price action. But just as we said in early July that the positioning and sentiment in the dollar was extremely bearish, it is now extremely bullish; the chances of this 2-month rally being over are increasing dramatically. Last week, the DXY index rose 0.8% and closed at 105.056.

The Euro was hampered by yet more negative data from the eurozone, especially from Germany. The ECB is now in a very difficult position as they face stubbornly high inflation, while the economy is showing a marked slowdown.

Sterling is in a similar situation to the Euro, as is the BoE with the ECB: high inflation but a deteriorating economy. What will the central bank choose: Curb inflation or avoid a recession?

Commodity currencies have been trading on lag for weeks and last week was no exception. The strengthening dollar pushed CAD and NOK marginally lower, while AUD and NZD fell about 1%. Elsewhere in FX, the JPY and CHF also lost about 1%, and the MXN crashed 3% lower as the Bank of Mexico announced that they would wind down their FX hedges.

Oil continued its way up as Saudi austerity was extended and supply remains tight. Last week, WTI rose 1.4% and closed at $87.18.

Precious metals almost always trade poorly when interest rates and the USD rally, and last week was no exception. Gold fell 1.1% to $1,919 and silver crashed more than 5% and closed at $22.92.

Equities retreated as interest rates rose – the S&P500 index fell 1.1% to 4460 points and the DAX also fell 0.8% to 15734 points.

Bonds sold off again, but it seems they are now reaching support. US 10-year yields rose 9bps to 4.26%, but have yet to find a catalyst for a breakout higher. The 10y Bund fell 1% last week and closed at 130,936 points.

Finally, cryptocurrencies had another consolidation week. At the time of writing, Bitcoin and Ethereum were trading flat at $25,900 and $1635, respectively.

The week ahead:

The week ahead is full of very important economic data, so last week’s quiet moves are unlikely to repeat themselves. On Wednesday, we have the US CPI, and this is something the Fed (and the whole world) is watching with excitement. Will inflation start ticking up again? We also have the ECB interest rate decision, and no change is expected.

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