United States - The Dollar Strength Continues
Last week, the US dollar advanced further against all majors on a mix of easing oil prices and the release of healthy US economic figures. The euro touched the highs of 1.5768 before falling to the lows of 1.5518. The sterling traded below the 2.0000 handle and lost ground on the increasingly deteriorating housing market to find 1.9733 as the bottom. The Japanese yen tested 108.30 three times during the week, but closed around the 107.70 area. The Aussie fell sharply as commodity prices eased and tested the 0.9280 levels. Finally, the Swiss Franc traded between the highs and lows of 1.0322 and 1.0521 respectively.
US Growth Data Disappoint Investors
Weaker than expected US GDP figures released on Thursday dragged the dollar from one month highs against the euro and yen and added more to the gloom of the US economy which grew at an annual rate of 1.9% in the second quarter; a faster pace than the first quarter but slower than economists’ forecasts of a 2.3% rise. Surging US exports as opposed to falling imports, and higher levels of consumer spending lifted growth considerably, however, as businesses drew down their inventories in an attempt to adapt to tougher economic conditions in the second quarter, this has managed to keep the growth rate below the estimated 2.00% level. The surprise reduction in inventories of $62.2bn compared to the previous $10.2bn was a major drag on the US GDP.
US Figures and Oil Drive the Dollar
The green back movement last week was mainly driven by the fundamentals and swinging oil prices. A combination of retreating oil prices and better than expected consumer confidence released on Tuesday managed to boost the dollar across the board. This rally continued further on Wednesday; pushing all majors to lower levels, upon the release of upbeat ADP private sector payrolls report which defied market consensus. However, with oil bouncing back from its lows from one side, and weaker than expected US growth data released on Thursday from another, the dollar managed to back away from its gains on some profit taking.
Economic Indicators
Last week’s US figures were mixed, but managed somehow to support the dollar. Consumer confidence for the month of July rose to 51.9 from the previous 50.4 and expectations of 50.1. ADP employment change surprised the market with a 9K gain as opposed to the previous 79K decline and expectations of a 60K drop. GDP, however, came out at a 1.9% annualized increase; lower than expectations of 2.3%. Core PCE rose 2.1%, lower than the previous quarter, but higher than expectations of 2.0%. Initial jobless claims rose to 448K compared to expectations of 393K and the previous 406K. Chicago PMI came out at 50.8; higher than the previous month and expectations of 49.6 and 49.0 respectively. July unemployment rose 5.7% from the previous 5.5% and expectations of 5.6%. Finally, non-farm payrolls dropped 51K compared to the previous reading of 62K and expectations of 65K.
Oil Prices Move Sideways
Oil prices rallied on a rather technical bounce at the beginning of the week, helped by climbing geopolitical tensions after bombs exploded in India and turkey, and the attack on two oil pipelines in Nigeria. However, for the first time in more than 16 months, the majority of speculators seem betting on lower prices, according to the Commodity Futures Trading Commission. For that reason, this major move is expected to be short lived.
Europe
Euro-Zone Inflation Soars to Record Highs
Surging oil and food prices pushed the Euro-Zone inflation rate to 4.1 in July; more than double the targeted level by the ECB. However, economists believe that this level does not necessarily signify a consistent rate rise due to the fact that a string of weak economic indicators, which were released during the week, signaled a slowdown in the Euro-zone economy over the summer, and oil prices have eased as a result of the falling global demand. The question remains whether the European Central Bank is going to raise interest rates in the coming months or not.
Weak Numbers
Euro-Zone consumer confidence fell to -20 compared to last month’s drop of 17 and expectations of 18. CPI estimate came out inline with expectations of 4.1%, slightly higher than the previous 4.0%. Unemployment rate rose 7.3% from the previous month and expectations of 7.2%. Finally PMI manufacturing for July came out at 47.4, compared to expectations and the previous reading of 47.5.
United Kingdom
Housing Market Weighs on Sterling
The sterling dropped heavily towards the end of the week in a move that can be best explained as technically driven, and as the fall in the UK house prices accelerated significantly. With the demand for housing being low, tight conditions being applied to mortgage applicants, and lenders finding wholesale funding so expensive, the housing market seems heading even lower and the bottom remains out of sight. House prices in July were 8.1% lower than a year ago, and the drop was steeper than June’s reading of 6.3%. The negative sentiment of the economy along with the poor housing market added more pressure on the sterling which fell to the lows of 1.9725 on Friday.
Economic Indicators
The economic releases from the UK last week added more pressure on the sterling. Mortgage approvals dropped to 36K, from the previous 42K and expectations of 37K. GFK consumer confidence showed a decline of 39 compared to the previous drop of 34 and expectations of 37. House prices fell 1.7% compared to last month’s drop of 0.9%, and 8.1% annually compared with last year’s decline of 6.3%.
Japan
Cross Selling Boosts JPY
Heavy selling of the yen crosses lifted the Japanese currency across the board on Friday after having tested the highs of 108.40 against the US dollar earlier during the week. The continuously deteriorating global equity markets prompted investors to pull out heavily and buy the yen in exchange for the majors in order to finance their loans with this lower yielding currency. As long as the market shows appetite for cross yen sales, and the stock markets show more signs of weakness, further advancement of the currency is expected in the near term.
Economic Indicators
No major economic releases had its impact on the yen last week. Jobless rate rose 4.1% in June, compared to expectations and the previous reading of 4.0%. Industrial production fell 2.0% compared to expectations of a 1.7% drop and the previous gain of 2.8%.
Kuwait
Dinar at 0.26585
The Central Bank of Kuwait has revalued the Kuwaiti Dinar this morning to 0.26585, following the drop of the US Dollar last week.
