USD and EM currencies experience softness, as next week sees Eurozone CPI, UK GDP and US durable goods take focus.
There have been two overriding themes in FX markets this week: the softer USD and the continued decline in value of EM currencies. The most notable event in FX markets has been the FOMC minutes release, which initially saw the embargo broken by a major newswire, to see the USD rise on a fairly hawkish headline, before the embargo was lifted to see the full release carry a more dovish tone and as such drag the USD-index lower. The USD continued its decline through the second half of the week, as the minutes release highlighted concerns from Fed members with both the US economy and the global economy, with particular focus on China. The comments from the Fed minutes on China are of particular interest because the meeting of the central bank actually took place back in July, before the latest events. Since the FOMC meeting, the PBoC has taken action to devalue CNY, while Chinese stocks have continued their fall, with the Hang Seng today entering bear market territory. Focus is likely to remain on US data next week, as the September rate decision approaches and a hike is viewed as less likely by market participants compared to prior to the minutes release.
Elsewhere this week, an ongoing theme has been weakness in EM currencies, with analysts at Deutsche Bank (XETRA:DBKGn) noting that 17 EM countries have seen their currencies depreciate by over 3% since China devalued CNY last Monday. EM currencies remained under pressure in reaction to China's Caixin Mfg flash PMI figure printing its lowest reading since Mar’09 (47.1 vs. Exp. 48.2), as well as the ongoing selling pressure in energy and metals markets. USD/RUB trades close to its highest level since Jan '15, USD/IDR at highest level since 1998 and USD/TRY also trades close to record levels. As WTI is set for its longest weekly losing streak since 1986, energy prices may remain in focus next week as the notable tier 1 data is CPI, with weakness in energy prices expected to weigh on the data.
Other highlights next week include German IFO business confidence, US durable goods and UK GDP.