Dismal Sentiment Data and Dovish ECB Commentary Hurts Euro
What’s been happening?
Pound Sterling – UK Markets
The Pound Sterling closed the day virtually unchanged against both the dollar and the Euro on Monday. The lack of significant macroeconomic data releases paved the way for choppy trading action.
Earlier in the day, citing a UK official with direct knowledge of the matter, Bloomberg reported British Brexit Secretary Barclay and the European Union Chief Brexit Negotiator Barnier were set to meet on Tuesday. Meanwhile, commenting on the possibility of an extension to Brexit, "There would be a great deal of reluctance among EU leaders to grant another Brexit extension," Irish Prime Minister Leo Varadkar told reporters. "There would have to be a very good reason for an extension, such as a general election." On the same subject, the new President-designate of the European Commission, Ursula von der Leyen, told The Parliament Magazine that she did not see any problems with a Brexit extension beyond October 31.
US Dollar – US Markets
The greenback was able to hold on to the gains it recorded against its major rivals last Friday on the back of upbeat nonfarm payrolls data as investors’ optimism surrounding multiple Fed rate cuts continued to recede. The 10-year Treasury bond yield, which rose nearly 5% last Friday, staged a technical correction and lost around 1% on Monday to keep the dollar’s gains limited.
In the second half of the day, the data published by the Federal Reserve showed that the total consumer credit in May edged lower to $17.09 billion from $17.46 billion but came in higher than the analysts’ estimate of $16.65 billion. The US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, gained 0.25% on a daily basis and closed at its highest level since June 19.
Euro – European Markets
The shared currency struggled to find demand on Monday following the disappointing macroeconomic data releases. Although industrial production in Germany rebounded with an expansion of 0.3% on a monthly basis in May, the annual rate slumped to -3.7% from -2.3%. More importantly, the data published by Sentix showed that investor confidence continued to deteriorate in July with the Economic Index plummeting to its lowest level since November 2014 at -5.8 from -3.3 in June and missing the market expectation of 0.1.
“In Germany, the overall index even fell to its lowest level since November 2009. A recession in Germany seems inevitable,” Sentix said. “Investors are thus not following the positive signals of the stock market, and there is no belief in a quick settlement in the trade dispute. Twitter reports alone will no longer lure investors around the world out of their reserves.”
In the meantime, European Central Bank Governing Council member Benoit Coeure told reporters that the bank’s accommodative policy was needed “more than ever” and added that the bank could restart the asset purchases if needed, to further weigh on the shared currency.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Tuesday.
US: The U.S. economic docket will feature the NFIB Business Optimism Index. Later in the day, Atlanta Fed President Raphael Bostic, St. Louis Fed President Bullard, and FOMC Chairman Powell will be delivering speeches.
EU: There won’t be any macroeconomic data releases from the euro area.