Daily Brief – US Dollar

US Dollar

With Chairman Jerome Powell’s “the time has come” speech at Jackson Hole, Wyoming USA the direction for USD in the next four months is down versus GBP, EUR and JPY. So far so easy in the fraught game of FX forecasting, but it would seem that Chair Powell has concluded that US interest rates will shortly commence their glide path downwards with two cuts anticipated between now and the end of the year. So what does that mean for GBP,EUR and JPY. To start with GBP, the move looks as if it has already mostly already happened with GBP moving up from USD1.27 to 1.31 with an objective of 1.35 by year end so a gain of 3%. EUR looks a little more interesting standing at 1.10 with an objective of 1.15 for a gain of 4.5%. JPY has more potential than the other pairs but needs to be caveated since it has already strengthened from 162 to 146 a move of almost 10%. However, an objective of 135 seems achievable or a gain of a further 7.5%. The old watchword of deciding where you want to get to only once you know where you currently are still holds good in FX land, and on that basis when it comes to selecting levels for 2025 budgeting purposes, while the direction of USD weakness is clear, markets rarely move in a straight line.

USD/CAD 1.3543.

Hong Kong Watch and Clock Fair

Yesterday manufacturers of exclusive and not so exclusive timepieces were showing off their new products in Hong Kong at the Watch and Clock Fair. With Swiss watch exports down 3% to CHF12.3 billion in H1 2024 the far more concerning drop is in demand in China -21.6% and Hong Kong -19.9% in July. This is due to firstly the economic turndown in China and secondly after what was a very lucrative period between 2020 and 2022 when watch prices rose by 27%.

GBP/USD 1.3120.

China Housing Market

As most readers know the miracle of China’s housing market only ever going up is well and truly over, but the question is where it goes from here: up or sideways? Neither according to JP Morgan: the market downturn is not yet over and prices will not stabilize for at least another 6-12 months. New house prices have fallen 1.76% from where they were 1 year ago but re-sales are down 6.89%. With USD 5.4 trillion in outstanding mortgages recent announcements about re-scheduling payments may offer some help to those already in the market, but do not revive interest from new buyers to stimulate demand. The measure that would change this gloomy picture is state intervention, but given official statements that remains more of a faint hope than a reality.

EUR/JPY 161.10.

Banque de France

Governor Francois Villeroy de Galhau may not be well known outside France and the Banque de France but he is influential in the Franco-German axis in the ECB when it comes to voting on a rate cut in the Eurozone on September 12 which is the date of the next ECB meeting. Governor Villeroy de Galhau has called for a cut as being “fair and wise” due to the progress on EU inflation achieved in the past months.

EUR/GBP 0.8412.

Survivor

The American rock group Survivor may be mostly forgotten now but this day in 1982 their anthem Eye of The Tiger had been in the charts for weeks and finally went to Number One. The song lives on seared into the consciousness of any fan of the Rocky films as Eye of The Tiger was the rallying cry for Sylvester Stallone to overcome pretty much everything really to triumph against insuperable odds in Rocky lll.

Risin’ up, back on the street
Did my time, took my chances
Went the distance, now I’m back on my feet
Just a man and his will to survive

So many times, it happens too fast
You trade your passion for glory
Don’t lose your grip on the dreams of the past
You must fight just to keep them alive

It’s the eye of the tiger, it’s the thrill of the fight
Risin’ up to the challenge of our rival
And the last known survivor stalks his prey in the night
And he’s watching us all with the eye of the tiger

Face to face, out on the heat
Hangin’ tough, stayin’ hungry
They stack the odds still we take to the street
For the kill, with the skill to survive

It’s the eye of the tiger, it’s the thrill of the fight
Risin’ up to the challenge of our rival
And the last known survivor stalks his prey in the night
And he’s watching us all with the eye of the tiger

Risin’ up, straight to the top
Had the guts, got the glory
Went the distance, now I’m not gonna stop
Just a man and his will to survive

It’s the eye of the tiger, it’s the thrill of the fight
Risin’ up to the challenge of our rival
And the last known survivor stalks his prey in the night
And he’s watching us all with the eye of the tiger

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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