Last week was packed with big economic announcements. Financial markets are fixated on three important indicators that could determine the course of US monetary policy. On Thursday, the U.S will get its Gross Domestic Product (GDP) numbers, perhaps the most important measure of overall economic performance. The Personal Consumption Expenditures Price Index (PCE) report is due on Friday. Analysts will be watching it especially closely for clues about where inflation is headed.
In Japan, the Core Tokyo Consumer Price Index (CPI) has consistently exceeded the Bank of Japan’s (BoJ) inflation targets since October 2022. With core Tokyo CPI at 3.0% as of August, it’s a sign that inflation on the ground is stubbornly forcing the Bank of Japan’s hand. For many central banks around the world, this presents an all too real challenge of two-speed economies. All of them are currently facing unprecedented downturns and navigating varying degrees of economic activity.
The foreign exchange market has been a good indication of these underlying economic trends. Currently the USD/CHF currency pair is strongly defending the 0.7950 mark. Investors are playing it safe ahead of the Swiss National Bank’s (SNB) interest rate decision on Thursday. Analysts expect the SNB’s rate decision will be a signal of deeper worries over inflation and economic growth.
Gold prices are rocketing, an indication that there are deep stresses in global financial markets. Another safe haven asset investors flee to gold during economic, political, and market uncertainty and limitation is a signal of fear in the markets. The EUR/USD pair has retraced back down into the bottom half of its recent range. It failed on a technical advance towards the 1.1800 handle.
On Wednesday morning, as a hushed-down DXY index was up two-thirds of one percent. This surge pushed it up to its dearest valuations in nearly a fortnight. DXY created dollar strength in a risk-on/risk-off environment. The DXY tested the 98.0 region, illustrating a stronger dollar. On the flip side, the GBP/USD pair has been under downward pressure, sinking to three-week lows around 1.3450.
As these economic indicators unfold, market participants will closely watch for insights into central bank policies and their implications for global financial stability. Inflation data, GDP growth, and central bank responses are going to interact in consequential ways. Their dynamic will be important in shaping investor sentiment over the next several days.