G10 and Global: The dollar in focus – Nomura

Research Team at Nomura, suggests that the Fed was in the spotlight this week and weak July retail sales data released last Friday set Q3 off to a soft start.

Key Quotes

“Comments from NY Fed Dudley earlier in the week were hawkish and elevated market expectations for a Fed hike in December to around 51%. However, the minutes from the July FOMC meeting showed that the committee is divided on the timing of the next rate hike, suggesting it will likely take time for the committee to reach a consensus.

Data received since the July meeting (retail sales and inflation) have undermined the case for a rate hike in the next few months, and our economists stick to their view of a December rate hike. The dovish Fed saw USD/JPY breach 100, prompting warnings from various Japanese officials. Prime Minister Abe’s advisor Mr Honda said that he views ‘bold’ BOJ action likely in September, believing the comprehensive review will point towards a larger easing package.

UK retail sales came in well above analyst expectations, rising 5.4% y-o-y ex-auto fuels (Consensus: 3.9%). GBP rallied 0.8% on the stronger number, showing the UK consumer less phased by Brexit than economists’ expectations. On UK data, the focus will move towards the PMIs in the first week of September.

This hunt-for-yield environment has supported AUD and NZD strength, but has also hurt low-yielders such as SEK. Weak data have also contributed to SEK’s underperformance. Our bias remains for EUR/SEK lower, even amid a slowing growth backdrop, with Sweden still expected to outperform the eurozone’s economy. However, in this search for-yield environment we remain near-term cautious on EUR/SEK short positions at these levels, though squeezes to 9.50-9.60 could be more attractive to short. We also see room for further CHF/SEK downside.”