Hurricane Irma, Dollar falls further
Markets continued to monitor the parliamentary debate on the EU repeal bill, but there was little impact on currency rates as global moves tended to dominate the fate of the Pound. Wider Dollar weakness pushed the UK currency to highs above 1.3100, although there was selling interest above this level while GBPEUR hit close to 1.0867.
The latest KPMG survey, however, reported that staff shortages had increased with upward pressure on wages. Dollar weakness continued to dominate in Asian trading on Friday with fresh five-week highs near 1.3150 against Sterling, as GBPEUR again approached the 1.0867 area.
The selling pressure around the Greenback stays unabated this week, now dragging the US Dollar Index – which tracks the Dollar vs. a basket of its major rivals – to the vicinity of the 91.00 handle, very near levels last traded in January 2015. Dovish comments by Federal Open Market Committee’s L.Brainard earlier in the week, plus increasing geopolitical concerns around North Korea and the ‘debt ceiling’ issue, have all been contributing to the acceleration of the downward move in USD to fresh 33-month lows.
The US Department of Labor released Initial Jobless Claims yesterday that showed the impact Hurricane Harvey has had on US unemployment. Initial claims for state unemployment benefits increased 62,000 to a seasonally adjusted 298,000, the biggest jump in over two years. With Harvey causing heavy flooding, which disrupted Oil & Natural Gas production, resulting in the temporary closure of Gulf Coast Refineries, Texas saw an increase in Americans seeking unemployment benefits. With Hurricane Irma expected to make landfall in the US on Saturday, markets are concerned with what devastation Irma may cause in a region only now starting to get back on its feet.
In the data space, July’s wholesale inventories and the speech by Philly Federal Reserve P.Harker are expected in the US calendar later today.
There were no major surprises from the European Central Bank (ECB) policy meeting yesterday. The ECB left interest rates on hold at 0% which was in line with expectations. In terms of forward guidance there was no change, with the same statement from last time repeated that bond purchases could be extended or increased if necessary. Inflation forecasts decreased slightly as the latest staff projections cut to 1.2% from 1.3% for 2018 despite speculation over a steeper cut.
ECB President Draghi stated that a decision will be made in Autumn for the bond-purchase programme and did not want the bank to be tied to a specific timeframe. Draghi also stated that Euro appreciation had caused an uncertain situation and that FX moves would be closely monitored due to the impact on growth and inflation trends. Finally, Draghi declined to give direct comments on the Euro as the lack of more forceful rhetoric pushed the currency higher across its rivals.
The single currency rose above the 1.2000 level against the Greenback whilst, against the Pound, the Euro also strengthened, driving the rate as low as 1.0872 but trading the majority of yesterday just below the 1.0900 region.
Data To Watch:
7:00am EUR Imports (MoM) (Jul), Exports (MoM) (Jul), Trade Balance s.a. (Jul), Current Account n.s.a. (Jul)
9:30am GBP Consumer Inflation Expectations, Industrial Production (MoM) (Jul), Manufacturing Production (MoM) (Jul), Industrial Production (YoY) (Jul), Manufacturing Production (YoY) (Jul)
1:00pm GBP NIESR GDP Estimate (3M) (Aug)
1:45pm USD FOMC Member Harker Speech
6:00pm USD Baker Hughes US Oil Rig Count
8:00pm USD Consumer Credit Change (Jul)