The U.S. Dollar remains in mostly tight ranges to close out a week in which it could claim some improvement, near 1.0%, per the Bloomberg Dollar Spot Index
Overview
Markets remain on edge as the Israel/Iran conflict keeps going while leaders around the world chime in about the dangers of a full engagement with Iran that could expand war across the Middle East. Future contracts showed signs of advancing as markets take relief in the fact that the U.S. is giving time for a resolution to be negotiated for the next two weeks. There is no clarity on what will be happening, but for now there is a sense that the U.S. is doing what it can not to make things any worse.
Economists are wondering what the impact on energy markets will be, but for now there is strong speculation that barrels of oil are going to be climbing significantly in value. Some analysts think they could get as high as $130.00-150.00 per barrel. It is important to keep this in mind as central banks, including the Fed, will need to rethink about inflationary pressures re-emerging. Next week we will gauge consumption and supply activity via Purchasing Managers Index on Monday, Confidence and Homes Sales Tuesday, plenty of Q1 final readings including GDP and Personal Consumption Expenditures in the middle, while the University of Michigan Consumer Sentiment shuts the curtain on Friday.
What to Watch This Week…
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GBP ⇓
Pound Sterling is down by over half a percent for the week and could see further losses as data is showing a lack of activity from consumers in the United Kingdom. This week has certainly been one with evidence of ongoing “Stagflation” in Britain, with Consumer Price Index figures as well as Retail Prices showing they expanded more than estimated in May. Meanwhile, growth is at peril with consumption clearly down as Retail Sales came out with a (-2.8%) contraction, fully erasing progress the month prior and shockingly bringing the annual average down from a positive 1.8% to a negative (-1.3%). PMIs next week could solidify the bad situation the country faces while the government looks for ways to spend and not lose popularity. Year-to-Date, Pound has improved by 7.8% against the Buck, so we shall see if this will be sustained as the second half of the year gets going.
CHF ⇓
The Swiss Franc is down by close to 1.0% for the week following a “Dovish” Swiss National Bank meeting that concluded in hopes of fostering depreciation. Officials, who do not meet as often as other policymakers worldwide, selected to lower interest rates to 0.0%. Next meeting will not be until September 25th as the SNB gathers quarterly.
It is possible that developments from here until then create enough of a scenario in which the SNB chooses to enter negative interest-rate territory, similar to how the other safe-haven in Japan exercised such policy until start of 2024. For years now, bankers have complained about CHF strength and how it impedes exports and the ability to be more competitive within Europe as well as global peers. It is difficult to envision a tremendous weakening however if the global picture makes it so that investors and traders still seek the Swiss Franc as a safe-haven asset during turbulent times.
