The US dollar posted gains against all the major currencies over the past week save the Australian and New Zealand dollars. The Reserve Bank of Australia appears to have moved to a more neutral stance on rates, relying on the currency to provide the necessary adjustment.
The dollar's gains were helped by a strong July auto sales, a jump in the service sector ISM, and a jobs report that was consistent with recent trends. Over the course of the week, a greater risk of a September hike was priced into the September Fed funds futures contract.
On the other hand, the Bank of England seemed to dash speculation of a rate hike this year. This sapped whatever strength the sterling bulls had been mustering. It was the best performing major currency against the dollar in July, but has fallen out of favor again.
There seems to be a bit of a rotation taking place among the major currencies. The dollar-bloc is beginning to show preliminary signs of stabilizing while the Swiss franc and Scandis have taken over the leadership on the downside. Some suspect the Swiss National Bank has covertly driven the franc down. Since the middle of July, the euro has rallied nearly 3.5% against the franc. The Swiss franc lost 2% against the US dollar last week. The franc's weakness will help recoup some of the paper losses the central bank experienced in H1.
Both Norway and Sweden publish July CPI figures in the week ahead. Despite the strong growth in Sweden in Q2 (1% quarter-over-quarter), the deflation pressures likely to remain evident are the key to monetary policy (negative rates and asset purchases). Falling inflation and the tick up in unemployment keeps the door open to for lower rates in Norway. The Norges Bank meets next on September 24.
The technical condition for the euro is weak, but it is not clear that the $1.08 area that provided support in May and July is about to break. There are some suspicion that a large bid near there may be from Swiss officials. Risk-reward considerations favor selling into bounces. The euro posted a big outside up day before the weekend. To do so, it had to shrug off the US jobs data that boosted the risk of a September lift-off by the Fed. This suggests scope for follow through euro gains. The $1.1030-50 may be the first serious hurdle, but risk extends toward $1.1100-20.
