Weekly currency news: the dollar holds firm on US employment data
The dollar appreciated against its main peers on Friday after US non-farm payrolls report showed that the labour market remains strong, providing further reasons for the Federal Reserve to hike interest rates at the turn of the summer.
Furthermore, the Bank of England approved a widely expected interest rate that failed to boost the pound, as Governor Carney warned that the Brexit could undo all the economic progress.
After an eventful calendar last week, this week we will have few indicators of relevance. Only the UK Gross Domestic Product and the US Consumer Prices Index may have some impact in the currency markets.
Currencies last week
- EUR/USD: dives to five-week lows at 1.1550
- GBP/USD below 1.3000, approaching key support at 1.2960
- EUR/GBP: sideways movement around 0.8900
- USD/JPY recovery limited at 112.00
Main events this week:
The only event worth mentioning in the U.S. economic calendar will be June’s Consumer Prices Index, which will be released in June. Investors will observe the core CPI with special interest, as it accelerated in June at its fastest pace in six years. If this trend continues, it would add pressure for the Fed to hike rates in September, which would be supportive for the dollar.
The Eurozone calendar is very thin this week. Only the German industrial production data, due on Tuesday, might have some impact on euro volatility. German industrial output bounced up strongly in May to ease concerns triggered by the weak start of the year. Another positive reading in June will confirm the trend and might have a positive impact on the euro.
In, the UK, on Friday the Q2 Gross Domestic Product is expected to show that UK economy grew in the second quarter after a sluggish start of the year. An upbeat GDP result might help to divert investors’ attention from the Brexit and trade tension fears and might help the pound to trim recent losses.
At the same time, National Statistics will release the UK Industrial and Manufacturing Production. Factory activity is expected to have improved in June, after a weak performance in May, which might be supportive for the pound.
In the Japanese Calendar on Wednesday, machinery orders are expected to have declined for the second consecutive month in June. This might be a signal of the impact of trade tensions and in that sense, it may increase negative pressure on the yen.
On Thursday, we will be attentive to the first estimation of the Q2 Japanese Gross Domestic Product. According to the market consensus, Japanese economy might have returned to growth in the second quarter, after the contraction observed in the first. If this scenario is confirmed, it might have a positive impact on the yen.
On Tuesday, the Reserve Bank of Australia’s monetary policy decision will attract some interest. The bank is not expected to consider any monetary tightening until 2019, thus, unless there is a substantial change on the bank’s forward guidance, we do not expect this event to have a relevant impact on the Aussie.