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As we move headlong into August, a continuing theme has emerged in foreign exchange markets concerning the performance of the global reserve currency. Having traded at a 14-year high only two days into the new year, the US dollar has since fallen over 10% to its lowest level since May 2016. Investors will now begin to question whether the sell-off is nearing an end or whether the threat of falling to two and a half year lows is very real.
With that said, however, the dollar will likely take a backseat for the majority of the week as investors focus on events in Europe and, in particular, the Bank of England’s quarterly ‘Super Thursday’ (policy statement 12pm, presser 12:30pm).
Policymakers at the Old Lady of Threadneedle Street have been hot and cold in their outlook for UK monetary policy in recent months, most notably with Chief Economist Haldane flip-flopping between voting for or against a rate hike.
While no change is expected this time around after a welcome fall in Inflation in June, the voting pattern of policymakers, inflation expectations and the tone of Governor Carney’s press conference will all be closely scrutinised by markets. A 1-7 vote may see the scales tip towards a 2019 hike, although a more hawkish tone from Carney could see a 2018 – and most importantly, pre-Brexit – rate hike more aggressively priced in.
Once the excitement of the BoE has passed, Friday’s July US Jobs Report (1pm) and, of course, the all-important Non-Farm Payrolls print, will see activity ramp up a notch.
Expectations are for the US economy to have added 183K jobs during the month, however policymakers at the Fed may pay more attention to Average Weekly Earnings. While inflation data has been soft in recent weeks, should monthly earnings growth return to 2017 highs of 0.3% it could provide a launchpad for the embattled dollar. A disappointment, though, may see markets begin to question whether a December rate hike remains on the cards.
While the Fed played its part in extending the US dollar sell-off last week, US politics is also playing a major part in the greenback’s demise. The Trump administration is yet to celebrate a major legislative victory and now the divergence in views for the path ahead seems to have reached the very top of the Republican Party. House Speaker Paul Ryan is pining for business-friendly tax reform to take the wheel, while the President remains fixated on repealing Obamacare.
However, despite the divisions in the White House, will the the dollar trading at such significant lows prove too tempting an offer for bottom pickers? Or will traders’ vote of no confidence see fresh lows plumbed?
Finally, the Euro remains within touching distance of the two and a half year highs it traded against the US dollar last week, however a range of macro data this week could dictate the movement of the common currency for the remainder of the Summer.
The preliminary Eurozone Q2 GDP print (Tuesday; 10am) provides the first top-tier macroeconomic release after Monday’s stronger-than-expected Core CPI print. The growth figure is expected to top 2% for the first time since 2011, putting an exclamation mark on the tenure of ECB President Mario Draghi only a week after the 5th anniversary of his ‘whatever it takes’ speech. An in-line or above expected reading would likely provide Euro Bulls with more ammunition to take the the Euro to fresh highs, although a weaker than expected print may result in the rally pausing.
Other macroeconomic releases of note this week include global Manufacturing PMI prints (Tuesday; all day), US Personal Income & Expenditure (Tuesday; 1:30pm), UK Construction PMI (Wednesday; 9:30am), NFP warm up ADP Employment Change (Wednesday; 1:15pm), global Services PMI prints (Thursday; all day) and US ISM Non-Manufacturing (Thursday; 3pm).
Key data this week (Sign up here to receive our daily live macro-calendar)
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UK Economic Announcements
09:30 Manufacturing PMI
Intl Economic Announcements
01:30 Nikkei PMI Manufacturing (JP)
02:45 Caixin PMI Manufacturing (CN)
8:45-9am Manufacturing PMI (European; various)
10:00 GDP (EZ)
13:30 Personal Income, Expenditure & Spending (US)
14:45 Manufacturing PMI (US)
15:00 ISM Manufacturing & Employment (US)
15:00 Construction Spending (US)
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UK Economic Announcements
00:01 BRC Shop Price Index
09:30 Construction PMI
Intl Economic Announcements
10:00 PPI (EZ)
12:00 MBA Mortgage Applications (US)
13:15 ADP Employment Change (US)
15:30 Oil Inventories (US)
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UK Economic Announcements
09:30 Services PMI
12:00 BoE Monetary Policy Update & Inflation Report
12:30 BoE Governor Carney Speaks
Intl Economic Announcements
02:45 Caixin PMI Services (CN)
8:45-9am Services PMI (European; various)
10:00 Retail Sales (EZ)
12:30 Challenger Job Cuts (US)
13:30 Weekly Jobless Claims (US)
14:45 Services PMI (US)
15:00 ISM Non-Manufacturing (US)
UK Economic Announcements
09:30 New Car Registrations
Intl Economic Announcements
07:00 Factory Orders (DE)
08:30 Construction PMI (DE)
09:10 Retail PMI (European; Various)
13:30 Jobs Report – Non-Farm Payrolls, Average Weekly Earnings, Unemployment (US)
18:00 Baker Hughes Rig Count (US)
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