FX Daily: Central banks back in focus

DXY highest since 26 August
Philip Wee17 Sep 2021
    Photo credit: Unsplash Photo

    USD is underpinned ahead of FOMC meeting on 22 September. DXY closed at 92.9, its highest level since 26 August. The US 10-year treasury yield rebounded to 1.338% from 1.299% after US advance retail sales expanded by 0.7% MoM in August. Consensus had expected US consumers to pull back spending after the University of Michigan consumer sentiment survey fell to 70.3 in August from 81.2 in July. Today, the same survey is expected to show an improvement in sentiment to 72.0 in September, and an increase in 1-year inflation expectations to 4.7% from 4.6% in August. Over the past few weeks, investors worry that US economic activities might have levelled off with inflation from the Delta-variant. As things stand, the US recovery is intact and inflation is high, with the Fed on course to taper asset purchases before the end of 2021.


    GBP depreciated 0.3% to 1.3795 on Thursday despite higher UK inflation data. On Wednesday, the Office for National Statistics reported that UK CPI and core inflation surpassed 3% YoY in August, more than 1% above the 2% target. GBP was also weaker than the 1.3837 level posted on 9 September, the day Bank of England Governor Andrew Bailey reckoned the minimum criteria for tighter monetary policy had been met. Although the BOE is widely expected to adopt a hawkish tilt at its monetary policy meeting on 23 September, GBP bulls are also running up against Fed taper expectations at the FOMC meeting on 22 September. Unlike the Fed, the BOE will roll back QE only after it returns the policy rate from 0.10% to 0.50%, which the money markets now see taking place in 2H22 instead of 1H23. On balance, GBP is still range-bound this month between 1.3720 and 1.3910 into next week’s key policy meetings.


    EUR disappointed and fell below 1.18 again. EUR is weaker than 1.1825 level posted last Thursday, the day the European Central Bank announced a slower pace of net purchases under its pandemic emergency purchase programme. With the ECB seen behind the Fed and the BOE in pulling back pandemic stimulus, EUR is facing downward pressure against USD and GBP. The lows for the EUR this year were 1.1664 vs USD on 20 August, and 0.8450 against GBP on 10 August.


    AUD depreciated 0.6% to 0.7292 on a weak jobs report. Although Australia’s unemployment rate to 4.5% in August from 4.6% in July, the labour market shed 68k full-time jobs and 78.2k part-time jobs. The participation rate also fell to 65.2% from 66.0%. The weak jobs report was flagged by Reserve Bank of Australia Governor Philip Lowe. The RBA minutes on 21 September should also reaffirm the stance that rate hikes will be late in 2024. The year’s low for AUD was 0.71 on 20 August.

    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]

    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.
    The information herein is published by DBS Bank Ltd. It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

    DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong SAR Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    The information set out in this website ("Information") is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. This Information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. This Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.