Dollar up and down
Underlying sentiment surrounding Sterling remained more fragile following Thursday’s Bank of England policy decision. The UK currency was unable to regain the 1.11 level against the Euro and there were fresh losses against the dollar following the US employment data. The UK currency registered the sharpest two-day decline for seven weeks as it retreated to lows around 1.3025 against the dollar.
Cable is now recovering some ground lost during last week following the dovish message from the Bank of England (Thursday) and the solid report from the US labour market (Friday).
Sterling edged weaker to the 1.1145 area against the euro with consolidation close to 1.3050 against the dollar.
Brexit headlines and USD-dynamics should stay as drivers for the pair’s price action ahead in the week, while industrial/manufacturing production coupled with the National Institute of Economic and Social Research GDP Estimate will be the main releases in the UK docket.
The US dollar strengthened prior to the weekend after the release of a strong report from the non-farm payrolls that in July increased by 209,000 against the expected 189,000. At the same time, unemployment declined by 0.1% to 4.3% and the average hourly earnings increased by 0.3% in line with the expected figure.
This morning, the greenback, tracked by the US Dollar Index, has given away part of Friday’s strong gains and is now hovering over the 93.30 region. In spite of the solid figures from July’s payrolls, expectations of further tightening by the Federal Reserve (FED) appear pretty steady, with the probability of a rate hike at the December 13 meeting holding on to the 47%, while the likeliness of such an announcement next month is at 14%.
In the US, we have a relatively quiet week ahead of us, with the main news release being CPI for July on Friday. The inflation measure have been rapidly declining since February and is currently far below the Fed’s 2% target with no immediate compelling argument for a drastic uptick. Although the Fed continues to believe the tighter labour market will eventually drive inflation up and the US dollar has recently depreciated sharply, these are both effects that take a long time to work their way into the CPI numbers.
In the US data space, the Fed’s labor market conditions index is due, although the attention should be on the speeches by FOMC’s dovish governor’s J.Bullard (St. Louis Fed, 2019 voter) and N.Kashkari (Minneapolis Fed, voter).
At the back end of last week, the market data saw slightly stronger than expected German factory orders data combined with firmer construction PMI index for July. However, the Euro was at the mercy of the dollar and pound as trends dominated with no comments from European Central Bank (ECB) officials as the holiday season contained central bank activity.
German industrial production for June and Sentix investor confidence are due for release today. Neither are expected to be market movers unless a drastic change from the expected but German business confidence is high. We continue to see strong activity levels for Corporations and SME’s supporting growth in industrial production. For the rest of the week, there is next to nothing in terms of Euro activity meaning that once again, we will see a Euro in the hands of its counterparts.
Data To Watch
02:00pm USD Labor Market Conditions Index (Jul),
05:25pm USD FOMC Member Kashkari Speech,
07:00pm USD Consumer Credit Change (Jun),
11:01pm GBP BRC Like-For-Like Retail Sales (YoY) (Jul)