Fed disappointment drives Dollar dumping
The trading day started poorly for the US yesterday as headline durable goods data for June showed a decline of 4.0%. This was followed by an unsurprising Federal Open Market Committee (FOMC) statement, in which there was no change to US interest rates despite the positive outlook for the US economy.
The FOMC stated that risks to the domestic economy have diminished, while consumer spending has been strong, although there has been disappointment surrounding investment. There was little direct guidance on the September meeting or on whether most Fed officials still anticipate two hikes this year. A single hike this year is now the most likely scenario.
Although USD held strong ahead of the announcement, closing the European session below 1.3100 and 1.1000 against Sterling and the Euro respectively, the news from the FOMC lead to a USD selloff. GBPUSD gained 0.75% in the following hours, while the Dollar also lost ground against the Euro, with EURUSD opening at 1.1100 this morning. Weekly unemployment news from the US today will be watched closely.
There was a rather positive day for the UK yesterday following the first Q2 GDP reading beating market expectations to print at 0.6%. This data was rather overshadowed by central bank meetings elsewhere in the world, which meant the impact on the market was relatively muted. There is a general consensus that the GDP figures will fail to improve over Q3, with Lloyds reporting that they are expecting stagnation on the basis of the evidence from July so far.
After the European close, Sterling benefitted from Dollar weakness, pushing Cable from 1.3108 up through to the 1.3200 threshold where GBPUSD opened this morning. There is an empty economic calendar for the UK today, so Sterling levels will be left to market sentiment.
The Euro strengthened by 0.13% versus the Sterling during yesterday’s European trading session despite positive data from across the Channel, ending the day at around the 1.1950. German unemployment change is due this morning. Predictions are that it will better last month’s figure of -6k. Consumer Price Index for July will then follow.
Data to Watch: 8am EUR German CPI MoM, EUR Spain Unemployment Rate. 8:55am EUR German Unemployment Rate. 1:30pm USD Unemployment Claims.