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Weekly currency news: dollar picks up as trade tensions resurface

U.S. Dollar

The dollar remains steady on Monday after a strong recovery seen at the end of last week triggered by safe haven moves on the back of a new episode of the US-China trade rift and Trump’s threats to cut Canada out of the NAFTA.

The euro pulled back from one-month highs after a two-week rally from 1.1300, while the pound trimmed gains after a sharp rally, fuelled by the comments of the Brexit negotiator, Michel Barnier, who hinted at the possibility of a partnership agreement between the UK and the EU.

This week we will have a rather busy calendar to open the month. The main focus will be on the  US non-farm payrolls but there are also some other events like BOC and RBA interest rate decisions, the conferences of FOMC members and PMI data in the Eurozone, UK and the US.

Currencies last week

  • EUR/USD: retreats from four-week highs past 1.1700
  • GBP/USD: hopes of a Brexit deal push the pound to 1.3000
  • EUR/GBP: retreats from 11-month highs at 0.9100
  • USD/JPY upside attempts capped at 111.85


Main events this week:


Dollar

In the US on Tuesday, the ISM Manufacturing PMI Index is expected to show that the sector’s activity slowed down for the second consecutive month. Although it remains at levels consistent with a solid performance, a sharper than expected decline might dent the confidence on the dollar.

On Wednesday we will have a string of conferences from Federal Reserve’s officials. The Bank is widely expected to approve its third interest rate hike of the year at the end of the month and, in that sense,  any signal confirming that theory would be supportive for the dollar.

On Thursday the ADP employment report will be observed as an advance of Friday’s non-farm payrolls data, due on Friday, and might have a significative impact on the dollar.

On Friday, the focus will be on the US Non-Farm Payrolls report and the average monthly earnings which will be analysed from a monetary policy point of view.  With only three weeks ahead of a key Fed meeting, the result of the non-farm payrolls might trigger relevant movements on the dollar

 

Euro

In the Eurozone calendar, on Monday we will be attentive to the Markit PMI Manufacturing Index. According to the market consensus, manufacturing activity is expected to be revised up, which might add support to the euro.

On Friday, Eurostat will release the second reading of the Eurozone Q2 Gross Domestic Product, which is expected to confirm that eurozone economy grew at a 2.2% year on year pace. Only a clear revision of these figures would have a relevant impact on the euro.


Pound

In the UK, on Monday, the PMI Manufacturing Index is expected to show an acceleration of the sector’s activity in August. With the market relieved on the higher expectations of a Brexit deal, a good manufacturing reading might increase buying pressure on the pound.

On Tuesday, the BoE Inflation Report Hearings will be observed with interest. BoE governor, Mark Carney, and his colleagues will testify before the Treasury Committee, and their views about UK economy and the bank’s monetary policy might have some impact on the pound.

Yen

In the Japanese Calendar, on Friday the Cabinet Office will release the leading and coincident economic indexes. This is a set of indicators that analyses the performance of the Japanese economy on the short and mid-term and might have a moderate impact on the yen.

 

Other currencies

On Tuesday the Reserve Bank of Australia will release their monetary policy decision. The benchmark interest rate in Australia has been at 1.5% for two years and is not expected to change in the near future, thus unless there is a surprise, the risk for the Aussie is likely to be negative.

Wednesday is the day for the Bank of Canada’s interest rate decision. The BOC raised rates to 1.5% in their last meeting in July, but, according to some analysts, the strong GDP growth might prompt the bank to raise them again in September. If that is the case, it might boost the CAD across the board.


Economic calendar