Dollar drifts lower in a week of lackluster summer trading

Tom Tong29/Jul/2013Currency Updates

We had another slow week of summer trading, without any of the grand monetary policy developments that have been driving markets for the past few months. The improving newsflow from Europe contrasted with marginally weaker second tier data from the United States. This weighed the dollar which spent most of the week drifting down. All eyes turn now to the upcoming blast of central bank communications and economic releases this week. The Fed, Bank of England, and the ECB all hold meetings this week, which will be capped by perhaps the most critical macroeconomic release worldwide at this juncture: the US payrolls report.

GBP

The main news of the week was the publication of the first estimate of second-quarter growth. The number confirmed that the UK has emerged from recession, growing at a 2.4% saar. This was exactly were consensus had pegged, and therefore market reaction was muted. Sterling spent all week trading almost tick by tick with the euro, ending up the week essentially flat against the common currency and up nearly 1% against the dollar. We expect some fireworks Thursday of this week, when the Bank of England and the ECB both are expected to release statements clarifying their views on “forward guidance” within a couple of hours of each other.

EUR

PMIs across the Eurozone surprised on the upside last week. The composite index stands now at just above the 50 level, consistent with an end to the European recession but not yet sustained growth. This news, together with further hints of stabilization in the Spanish labour market, buoyed the common currency against other non-European currencies, and the euro ended up the week nearly 1% higher against the dollar. Key for next week will be the ECB’s reaction to the mild improvements in the European economic outlook that we have seen over the past six weeks or so.

USD

Macroeconomic data out of the US turned more positive last week, after a string of somewhat disappointing reports. Orders for durable goods surprised to the upside, rising 4.2% for the month against expectations of a 1.4% rise. The PMI business confidence survey also surprised to the upside, clocking in above 53 and allaying fears that the slowdown in growth seen in the second quarter is anything other than a blip. Again, after a very quiet week, all eyes now turn to the FOMC meeting this week and the all-important job market report on Friday.

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Written by Tom Tong

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