UK mortgage approvals beat forecasts with a sharp increase of 40,000 for June, up from 9,300 previously; this follows the easing of lockdown measures in the housing sector. Consumer debt continued to be repaid during the month, although there was a substantial decline from May’s levels and overall consumer lending posted a £1.8bn increase in June following May’s £4.5bn contraction.
The positive data provided an element of support to the Pound although global flows dictated trading and month-end positioning became more evident. Sterling pushed to highs just below 1.3000 on the Dollar while the Euro rose to 1-week lows near 1.1050 before a recovery to 1.1019 as the Euro gained support. Following the Fed statement Sterling tested resistance above 1.3000 on the Dollar before hitting selling interest. This morning Sterling opens near 1.2960 on the Dollar and 1.1025 on the Euro. There will be further month-end positioning to come which could well lead to choppy trading.
The US goods trade deficit declined to $70.6bn for June from $75.3bn previously as exports recovered at a stronger pace than imports. Pending home sales increased 16.6% for June, above expectations of 15.0%. Overall, the dollar lost ground after US markets opened, although moves were driven primarily by gains in the Euro.
The Federal Reserve (Fed) maintained the Fed Funds rate in the 0.00-0.25% range, in line with consensus forecasts and with a unanimous vote. According to the statement, economic activity and employment had picked up somewhat in recent months, but remained well below levels at the beginning of the year. The public health crisis will weigh heavily on economic activity employment and inflation in the short term and also poses a considerable threat to the medium-term outlook.
The Euro was trading at fresh multi-year highs against the Dollar shortly after the Fed's rate release, peaking just over the 1.18 mark as the Central Bank kept rates unchanged at 0.00 - 0.25%
While the path of least resistance for the common currency on the higher side, the pair looks quite overbought and may suffer a pullback if Germany reports a bigger-than expected economic contraction in the second quarter today.
As of writing, the Euro is currently trading around the 1.1755 level against its US counterpart.
Data to watch
08:00 - EUR - German Prelim GDP
12:30 - USD - Advance GDP
12:30 - USD - Advance GDP price index
12:30 - USD - Unemployment claims
Posted in Daily Market News on Jul 30 2020