us federal reserve

US Dollar helped by cooling trade war

1st July 2019 Market Update

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🇬🇧 GBP –  Sterling suffered against the Euro last week as it fell to 5-month lows on Friday morning before lifting through the late afternoon. Improvements were also seen against the US Dollar on Friday after a week of trading in relatively tight ranges. Concerns surrounding Brexit mean that investors are holding back on taking Sterling positions which looks set to continue until the new Conservative Party leader is installed into 10 Downing Street at the end of July. The final reading for Q1 GDP was overlooked by markets after coming in with expectations, despite being the most important release of the week.

Attention will shift to manufacturing, construction and services sector PMI results through the early part of the week. Only the latter on Wednesday is expected to be in growth territory and any movement towards contraction could hurt the Pound further. However, political risk will continue to dominate day to day movements.

🇪🇺 EUR – The Euro was the biggest beneficiary of US Dollar weakness last week as it achieved its biggest monthly gain in 17 months, up by about 2% in June. This move was consolidated by core inflation increasing from the previous level of Friday set against the backdrop of concerns surrounding the weak outlook for inflation and a faltering economy in Europe.

This week features a range of mid-tier data from Europe spread over the days. PMI figures are due to show a mixed bag with Manufacturing still showing signs of pressure. The Unemployment rate on Monday and Retail Sales data on Thursday will be watched closely to provide a gauge on the health of the Eurozone economy and a variety of speeches throughout the week from ECB members may provide some forward guidance. The Euro is well positioned to continue gaining from US Dollar weakness despite the domestic economic issues.

🇺🇸 USD –  The Greenback has been on the back foot recently but managed to hold firm towards the end of last week with markets anticipating constructive talks between the US and China at the G20 Summit. The Dollar index posted its first quarterly loss since the end of Q1 2018 and key trading signals suggest that Q3 could be difficult for the US Dollar with an interest rate cut expected. Both Q1 GDP and Personal Consumption Expenditures for May were in line with expected figures on Thursday and Friday which contributed to the muted movements.

Over the weekend, a softening in the trade war between the US and China, helped the US Dollar index to regain 0.2%, with the agreement that further tariffs would be on hold for now. PMI readings will again be in focus early this week while Thursday is Independence Day which may see the US Dollar suffer with lower than usual trading volumes. On Friday, average hourly earnings are expected to increase slightly as is Non-Farm Payrolls which could bring about a positive end to the week for the Dollar. Analysts will be watching more closely than in previous months as it is likely to be a key part of the Fed’s interest rate decision making.

 

Summary:

GBP: Poor economic sector results could hurt the Pound
EUR: Unremarkable in data but taking advantage of US Dollar weakness
USD: Easing trade war helps US Dollar to gain back some lost ground


 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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