- A cyber outage on Friday spooked investors.
- Markets raised the likelihood of another Bank of Canada rate cut in July.
- Data on Friday showed an acceleration in Japan’s inflation.
Currency futures fell on Friday as the dollar rose on safe-haven inflows after a cyber outage. At the same time, Fed rate-cut optimism fell, and markets focused on US economic resilience instead.
A cyber outage on Friday spooked investors and had them rushing for safety in the dollar. Cybersecurity firm CrowdStrike made a software update that disrupted many sectors, including travel. This event brought to light the risks of digitization and interconnectedness.
At the same time, currency futures retreated as Fed rate-cut optimism faded. Since last week began, the dollar had plunged as markets moved to fully expect a Fed rate cut by September. There was more confidence about a cut after inflation eased more than expected in June. At the same time, when Powell spoke on Monday, he indicated growing confidence that inflation will fall sustainably to the 2% target.
However, as the week continued, it became evident that the US economy remains resilient despite high rates. Retail sales data came in higher than expected, showing consumers were not as weak as forecasted. This indicates that the Fed might achieve a soft landing, where inflation drops without pushing the economy into a recession.
The Canadian dollar had a terrible week as markets raised the likelihood of another Bank of Canada rate cut. Data throughout the week showed inflation easing faster than expected and the economy declining. Notably, data on Friday showed that retail sales fell by 0.8% when economists had expected a 0.6% decline. A second rate cut in July will weigh on the Canadian dollar.
Meanwhile, the euro was weak on Friday, a day after an ambiguous European Central Bank policy meeting. The ECB held rates but gave no clues on what might come next and when. Although the central bank expects inflation to fall, Lagarde said it was currently still high, leaving investors confused.
UK retail sales (Source: Office for National Statistics)
The pound also fell as retail sales data showed poorer-than-expected consumer spending in June. This was due to cold weather, which kept consumers from shopping.
The outlier on Friday was the yen, which remained firm after BoJ interventions. At the same time, data on Friday showed an acceleration in Japan’s inflation, supporting BoJ hikes.
