US economic performance in stark contrast to European sluggishness

Claire Hogarth22/Aug/2014Currency Updates

On Thursday, the USD released some great data again in contrast to the Eurozone and the UK. Esther George, one of the most hawkish members of the Fed, said in a television interview that the Fed should begin hiking interest rates sooner rather than later. Nevertheless, USD failed to rally, possibly due to the large short positions in the other main currencies, especially in EUR. Today, Yellen and Dragi will give their speeches in Jackson Hole. The speeches are scheduled respectively at 15.00 and 19.30 local time.

GBP

Mostly bad news for the UK on Thursday as British retailers sold less than expected in July, with annual growth in sales volumes slowing to the weakest rate since November last year in a sign that consumer demand softened at the start of the third quarter. Retail sales volumes rose 0.1% from June and were 2.6% higher than in July last year, compared with increases of 0.2% and 3.4% respectively in June. Economists were expecting sales to rise 0.5% on the month and 3.1% on the year in July.

The GBP decreased slightly versus the EUR and remained flattish versus the USD.

EUR

The Eurozone also released disappointing reports on Thursday. Business activity in the Eurozone expanded sluggishly in August. The purchasing managers index (PMI) for the Eurozone weakened in August to 52.8 from 53.8 in July. Activity in Germany and France followed a similar pattern. Growth in Germany lost some momentum in August, held back by the weakest manufacturing sector performance since June 2013. PMI for Germany slowed to 54.9 in August from 55.7 a month earlier. Services led the expansion but factory output dipped.

Overall, it seems that the large gap between actual data and sentiment index is beginning to close, as the PMI surveys start coming down to match the depressed activity levels.

USD

Once again there is good news from the US. The manufacturing PMI jumped to a reading of 58 in August from 55.8 in July, to reach the highest level since April 2010. Output and new order components accelerated, and employment rose to the highest level since March 2013. The number of people applying for unemployment benefits fell below 300,000 for the third time in five weeks. Initial jobless claims fell by 14,000 to 298,000 in the week of August 10 to August 16. The monthly average is still near the lowest level in eight years. The government said continuing claims decreased by 49,000 to a seasonally adjusted 2.5 million in the week ending August 9.

Next, the August reading of the Philadelphia Fed index jumped to 28 from 23.9 in July, marking the highest level since March 2011. Economists expected a reading of 18. Sales of existing homes also beat expectations as they rose 2.4% in July to a seasonally adjusted annual rate of 5.15 million, the fastest pace this year.

Finally, and again great news, as the leading economic index for the U.S. rose 0.9% in July, following strong gains in June and May, in another sign that growth has ramped up over the summer for the US.

Of course, we still look to the critical payroll report next week to validate the apparent acceleration in US economic performance, but all of the second tier reports over the last two weeks seem to support the view of a strengthening US economy.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.