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Dollar takes a month-end battering

Dollar takes a month-end battering

GBP
UK consumer lending data beat expectations, suggesting a willingness to increase borrowing despite real incomes declining. Moody’s warned over the risks of a sharp increase in consumer lending. Mortgage approvals data printed close to expectations.

Sterling confidence was again supported by expectations that the UK government would push towards a ‘soft’ Brexit, especially with evidence of increased influence from the Treasury Department given Prime Minister Theresa May’s weak position.

The Pound found support just above 1.3100 against the Dollar and moved higher in US trading. There was little change against the Euro with some support from short covering ahead of Thursday’s Bank of England rate decision.

There was further Sterling demand into the fix (4pm) on position adjustment which pushed the UK currency to fresh 10-month highs close to 1.3200 against the Dollar and a break above this level triggered further stop-loss buying. Today’s UK PMI data will be watched closely for improvement with a view to breaching 1.3250 against the Dollar.

USD

The Greenback fell to fresh yearly lows against its peers yesterday after renewed US political jitters gripped markets. President Donald Trump removed communications director Anthony Scaramucci from his role after 10 days in office – a new record. The USD index (a measure of the value of the Dollar relative to a basket of foreign currencies) dropped to 92.64, the lowest level since May 2016.

Moreover, the recent series of downbeat US fundamentals combined with the less hawkish Federal Reserve (Fed) outcome also continue to cast a cloud of doubt on the US economy, adding to broad USD weakness. The focus remains on the current weak patch in US inflation, messy US politics, and the improving Euro area backdrop, which is pushing the Dollar much weaker versus the Euro in particular.

The market expectation is for the Fed to announce a change to its reinvestment policy at the September meeting. Along with the argument that the balance-sheet reduction could be a substitute for a rate hike, the recent decline in core inflation might lower the possibility of the next rate hike coming in September.

Today in the US, we see the ISM manufacturing data release which will grab all the attention, followed by the manufacturing PMI and personal income/spending.

EUR

The Euro gained on the back of core inflation rising to 1.2% from 1.1% previously and a falling unemployment rate to 9.1%, beating estimates of 9.2% for May. Further, headline inflation and flash inflation estimates remained stable. The Euro continued its run of form against the Dollar stretching to 1.1843.

Today’s market events have preliminary Eurozone Q2 GDP data out, expected to hold steady at 0.6% q/q, unchanged from the previous quarter. Further, final Eurozone manufacturing PMI readings, capturing business conditions in the manufacturing sector, for July are not expected to bring any revisions while July’s German jobless numbers are also out. Plenty to keep investors on their toes.

Date To Watch:
7:55am EUR Markit Manufacturing PMI (Jul)
8:00am EUR Unemployment Change (Jul), Unemployment Rate s.a. (Jul), Markit Manufacturing PMI (Jul)
8:30am GBP Markit Manufacturing PMI (Jul)
9:00am EUR Gross Domestic Product s.a. (YoY) (QoQ) (Q2)
12:30pm USD Personal Consumption Expenditures – Price Index (YoY) (Jun), Core Personal Consumption Expenditure – Price Index (MoM) (Jun), Personal Income (MoM) (Jun), Personal Spending (Jun), Personal Consumption Expenditures – Price Index (MoM) (Jun), Core Personal Consumption Expenditure – Price Index (YoY) (Jun)
1:45pm USD Markit Manufacturing PMI (Jul)
2:00pm USD ISM Prices Paid (Jul), ISM Manufacturing PMI (Jul), Construction Spending (MoM) (Jun)

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