What’s been happening?

Pound Sterling – UK Markets 

The British came under strong selling pressure on Friday following the disappointing growth data published by the UK’s Office for National Statistics (ONS) and slumped to its lowest level since January 2017 against the dollar and touched its weakest level vs the euro in nearly a decade.

According to the ONS; the UK economy contracted by 0.2% on a quarterly basis in the second quarter following the first quarters +0.5% reading and came in worse than the market expectation of 0%. On a yearly basis, the GDP expansion rate fell to 1.2% from 1.8%. “The production sector contracted by 1.4% in Quarter 2 2019, providing the largest downward contribution to GDP growth; the fall was driven by a sharp decline in manufacturing output, reflective of increased volatility in the first half of 2019,” the ONS explained in its press release. Other data from the UK showed that the manufacturing production and industrial production declined by 0.2% and 0.1%, respectively, on a monthly basis in June. Finally, the total business investment fell by 0.5% in the second quarter.

Commenting on the GDP report, British Finance Minister Sajid Javid argued that the fundamentals of the economy were strong and the GDP reading was reflecting the volatility in the macroeconomic data. Regarding a possible no-deal Brexit, "There is more we can do to prepare for no-deal Brexit," Javid said. "I'm confident that we will not just get through a no-deal Brexit but that we shall be stronger in the end." Later in the day, Michael Gove, a conservative politician and the Cabinet Office Minister who is in charge of no-deal Brexit planning, repeated that the government has done a lot to prepare for a no-deal Brexit but added they had a lot more to do and that they would spend "whatever it takes" on preparations before October 31.

US Dollar – US Markets

The dollar struggled to find demand on Friday as investors refrained from taking a risky position ahead of the weekend. The US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, snapped its three-week winning streak. 

The only data from the US revealed that the Producer Price Index remained steady at 1.7% on a yearly basis in July as expected. The core PPI that excludes volatile food and energy prices, edged lower to 2.1% in the same period from 2.3% and fell short of analysts’ estimate of 2.4%. 

Meanwhile, while speaking to reporters at the White House, US President Donald Trump said that he was not ready to anything regarding trade negotiations with China. When asked if next round of face-to-face talks in September would take place as planned, “maybe,” Trump responded.

Euro – European Markets

The euro closed the day higher against both the dollar and the pound sterling on Friday. Germany’s Destatis announced that the trade surplus was €18.1 billion in June, matching May’s reading and falling short of the market expectation of €18.6 billion. 

Although the shared currency continued to outperform its major rivals, it might have a difficult time gathering strength in the near-term amid political turmoil in Italy. Fitch Rating on Friday announced that it affirmed Italy’s credit rating at ‘BBB’ but said the outlook was ‘negative’. “This week's political developments reinforce our assessment at the previous review that the government was unlikely to see out a full term and there is an increasing risk of an early election from the second half of this year,” Fitch said in its publication. “There are downside risks to the fiscal outlook should a future government opt to disengage from EU fiscal rules and be more willing to risk financial market instability.”

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the UK on Monday.

US: The US Financial Management Service will release its Monthly Budget Statement for July. 

EU: There won’t be any macroeconomic data releases from the euro area.