The U.S. dollar index touched on a new six-month high overnight as investors looked positively on upcoming U.S. economic data and the Fed’s monetary policy announcement this afternoon. So far this morning ADP, America’s largest payroll processor, reported that private sector jobs increased by 218K in July, slightly below the forecast for 230K. Investors await the release of second quarter GDP this morning as well as the Fed’s statement this afternoon, which could, even if just marginally, acknowledge the steady improvement in the world’s largest economy. Such a scenario could hint that borrowing cost in the U.S. may rise sooner than the current forecast for some time around mid-2015. Treasury yields and the dollar would both move broadly higher on any hawkish tweaks to the Fed’s policy statement.
The euro hit a new eight-month low against the greenback overnight ahead of a key batch of U.S. economic data this morning and the Fed’s policy statement this afternoon. German CPI data released this morning showed that prices increases in the euro zone’s largest economy slowed to just 0.8%(y/y) in July, in-line with market expectations and likely a sign that broader euro zone inflation also slowed this month. While a cooler than expected euro zone CPI number tomorrow would not likely prompt additional ECB easing imminently, it would once again highlight the divergent economic and policy outlook between the U.S. and euro zone.
Sterling fell to a new seven-week low overnight, slipping further below a recent six-year peak. While the BOE is still expected to lead other major central banks in eventual policy tightening, that story has largely been priced into the pound’s near 10% rise over the past year.
Sweden’s crown fell to a new two-year low against the broadly firmer U.S. dollar after a disappointing reading of the nation’s Q2 GDP.
EUR: The euro felt to a new eight-month low against the dollar this morning in the wake of news that German inflation fell in July. CPI in the bloc’s largest economy slipped from an annualized rate of 1.0% to 0.8% in July, largely in-line with market forecasts. The fall in price pressures suggests that broader euro zone CPI, set for release tomorrow, is also likely to have fallen this month. The dangerously low inflation backdrop in the euro zone prompted the ECB to adopt record low borrowing costs, negative deposit rates and a host of cheap credit facilities for banks last month and should keep the threat of additional policy easing, possibly even outright asset purchases, on the table. However, given that officials will want to gauge the impact of last month’s rate cuts and its massive loan facilities, which do not launch until the fall, additional imminent easing from the ECB is not likely. Still, the anemic backdrop in the euro zone continues to contrast an improving economy in the U.S. and should keep the euro biased lower.
GBP: The pound fell to a new seven-week low against the broadly resurgent dollar this morning. While there has been little change in the outlook for the BOE to lead other major central banks in eventual monetary normalization, the pound’s inability to break further above a recent six-year low suggested that much of that positive news was firmly priced into its 10% rise over the past year. Moreover, the pound recently fell below key support at its 55-day moving average, a development that should keep in-tact its near-term trend lower.
SEK: Sweden’s crown fell to its lowest in two-years against the greenback this morning following a 1.9%(y/y) reading of the nation’s GDP for Q2, which was well under the 2.4%(y/y) forecast. After slashing rates back down to just 0.25%, Sweden’s Riksbank is running dangerously low on ammunition with which to combat the moribund economy and an inflation rate that is among Europe’s lowest.
CAD: The loonie fell to a new six-week low against the buoyant greenback after data this morning showed wholesale prices north of the border fell by 0.1%(m/m) in May. A stronger Canadian dollar weighed on export prices in the nation’s key auto industry and was the third monthly drop in wholesale prices. The loonie, which had soared to its highest all year in early June, has likely put in a near-term top.
USD: After ADP reported a weaker than expected, but still strong +218K private sector jobs growth in July, second quarter GDP was reported at a massive 4.0%(annualized), which eclipsed the forecast for a rise of 3.2%. Q1’s horrid 2.9% (annualized) contraction was revised up to a less-horrid -2.1%. GDP was robust across the board in Q2, with nearly every sector showing a strong rebound from Q1. The report sent yields and the dollar broadly higher this morning.