Forex Market Mood Buoyed by Strong Chinese Data

Forex Market Mood Buoyed by Strong Chinese Data

Published: September 20th, 2020

 For the first time since March 2020, Chinese retail spending is up year-on-year. The good news has buoyed the forex markets not only in China but also the world over. The Great Britain pound is, however, not lucky as it continues to falter over the just-released unemployment numbers.

The forex markets around the world received a major boost on Wednesday, September 15, after China released its retail spending data. The information shows that China has recorded an increase in its retail sales for the first time this year that surpass last year’s figures.

The news has injected a timely and much-needed stimulus to equity markets throughout the world. Overall, markets in Europe, the U.S., and China gained. Even some currency pairs benefitted from the news coming out of China.

The only currency that remains in the doldrums is the British pound. Market experts speculate that the Brexit woes are the cause of the currency’s continued troubles.

Premier Positive Sales 2020

The August monthly retail sales numbers in China have outpaced last year’s data for the first time this year. Compared to 2019, last month’s data increased by 0.5% year-on-year. The figures are an indication that the populous Asian nation is back to regular life, spending habits of its population included.

The data show a steep increase in the trends that have lagged almost 9% for the past eight months compared to 2019 figures. The numbers provide confidence in the Chinese markets. They also instilled trust in the economic recovery of the world. Such is the bargaining power of China’s spending habits.

In particular, some segments of the economy recorded very sharp increases. For instance, auto sales were up almost 9% in August. Industrial production also went up by 5.6% compared to the same period last year.

The impressive figures are timely for most markets all over the world. In particular, forex trading markets welcomed the news gleefully. However, the delightful reception was not limited to the forex markets alone.

The euro was up almost touching $1.19. Market analysts did not expect the currency to behave so excitedly just before the Federal Reserve’s policy decision on Wednesday, September 16. However, the same analysts think German’s impressive GDP figures played a part.

According to the German ZEW survey, a study of about 350 institutional investors in Germany, the Bavarian country did well in July and August. The survey also shows that confidence is slowly but surely seeping back into the entire European bloc.

Dollar and Equities Seesaw in the Americas

The equities markets in America opened strongly even as the dollar stayed firm in its newfound region of weakness. The stocks in the U.S. followed trends set in Europe and the Orient. The Dow Jones Industrial Average picked up more than 150 points in the morning trading session as other major indices followed suit.

All major tech names such as Amazon, Apple, and Microsoft recorded impressive gains. Even Tesla bounced back, raking in a massive 17% increase cumulatively since the beginning of the week.

However, all the positivity swathing the financial markets was not enough to change the moderate climb of the Sterling into something massive. The pound is yet to break the $1.30 resistance mark even despite the dollar’s continuing weak run.

Meanwhile, trading in the U.K. appears cautious especially after the latest unemployment figures rose to 4.1%. However, the jobless claim numbers came in a little lower than expected. Despite the slight positivity, it is clear that the controversial Brexit bill is weighing down heavily on the British currency.

So contentious is the bill that the EU is threatening legal action to push Great Britain to reconsider its decision. Overall, the unfriendly back and forth is putting a great deal of uncertainty not only on the Brexit negotiations but also on Britain’s forex market and the country’s economy as a whole.

Meanwhile, Wall Street Loses Impetus Following Fed’s Policy Decision

The short-lived rise caused by the boost from the good news of Chinese data was evident on Wall Street after trading plunged on Wednesday, September 16. The markets lost ground after the Federal Reserve reiterated that the base interest rate will remain where it is. Besides, the U.S. central bank said that it will continue implementing the ongoing fiscal and monetary policies.

The news sent the S&P 500 plunging, losing 0.2% and turning away from the almost 1% recorded earlier in the day. European equities markets, which closed before the Federal Reserve’s announcement, held on to the day’s gains to record the fourth consecutive daily surge. The region’s STOXX 600 inched up 0.6%. The U.S. Treasury yield lost a bit of the gain raked in earlier after news of the Fed’s decision hit the market. However, they closed higher for the day.

The yield on the 10-year Treasury note was down a basis point to stand at 0.67% despite the bond prices rising.

Policy Setting Committee’s Decision

The new average inflation target adopted by the responsible Fed committee now institutes an approach more dovish than the bank’s prior strategy. According to the new policy, the fed will target a core inflation rate that is moderately above 2%.

The Federal Open Market Committee will also adopt an accommodative stance. Noting that the U.S. economy is bouncing back faster compared to the outset of the coronavirus pandemic, the Fed has revised its outlook of the economy. The economy’s projected contraction is now just 3.7% for 2020. This figure is a stark reduction from the 6.5% decline earlier forecasted.

Either way, the data released on Wednesday, September 16, indicates a decline in retail sales in August, highlighting the choppy economic recovery.

Final Thoughts

Strong economic data released by the Chinese government helped improve the mood of the equities markets all over the world. It is the first time in 2020 that Chinese retail sales figures have shot past the corresponding numbers recorded in 2019 month-on-month. While stocks soared, the dollar, euro, and pound stuck on their not-so-impressive trends. The dollar’s performance was affected by the latest Fed policy while the pound is suffering because of the Brexit woes.

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