Dollar Continues to Weaken on Dismal Consumer Sentiment Report
What’s been happening?
Pound Sterling – UK Markets
The pound had a mixed trading session against its rivals on Friday amid a lack of macroeconomic data releases from the UK and recorded modest gains vs. the dollar while continuing to weaken vs. the euro. Until concerns surrounding the possibility of a no-deal Brexit fade away, the sterling’s upsurges are likely to stay short-lived.
Britain's Brexit minister Dominic Raab, who argues that securing a deal is still the most likely outcome of the negotiations, will travel to Brussels on Tuesday to hold talks with his the EU’s chief negotiator Michel Barnier. According to Reuters, PM May’s office in a statement said: “On the agenda will be resolving the few remaining withdrawal issues related to the UK leaving the EU and pressing ahead with discussions on the future relationship.” Meanwhile, Downing Street is scheduled to publish a document on Thursday listing the steps that people and businesses need to take if they fail to reach an agreement. The paper’s main focus will be "sensible, proportionate, and part of a common sense approach to ensure stability, whatever the outcome of talks."
US Dollar – US Markets
The greenback extended its losses against other major currencies on Friday and the US Dollar Index, on a weekly basis, closed in the negative territory. Although this move looks like a technical correction of the sharp rally witnessed during the first half of August, Friday’s data may have played a role in the broad-based dollar weakness.
The headline Consumer Confidence Index of the University of Michigan’s Consumer Sentiment Survey fell to 95.3 in August from 97.9 in July, its lowest level since September 2017. The publication highlighted that consumers are now more sensitive to rising inflation than they have ever been. “As is usual at this stage in the business cycle, some price resistance has been neutralized by rising wages, although the falloff in favorable price perceptions has been much larger than ever before recorded. Overall, the data indicate that consumers have little tolerance for overshooting inflation targets, and to the benefit of the Fed, interest rates now play a more decisive role in purchase decisions,” the UoM said.
Euro – European Markets
The data released by the European Central Bank on Friday revealed that the seasonally adjusted current account surplus rose to €28.5 billion in June from €6.6 billion in May. Moreover, the monthly report published by the Eurostat showed that the annual inflation measured by the Consumer Price Index rose 2.1% in the euro area and 2.2% in the European Union. The core-CPI, which excludes volatile food and energy prices, remained steady at 1.1% on a yearly basis while declining 0.5% on a monthly basis. Nevertheless, all these numbers came in line with experts’ estimates.
In the meantime, the CFTC’s weekly Commitment of Traders (COT) report showed that investors continued to reduce their exposure to the euro with the net non-commercial, speculative, positions falling to -1.8K from 10.6K.
What’s coming up?
UK: An empty economic docket in the UK will leave the pound at the mercy of Brexit headlines on Monday.
US: There won’t be any macroeconomic data releases from the United States on Monday. Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, will be delivering a speech later in the day.
EU: The Eurostat will release the construction output figures, which is unlikely to have a notable impact on the euro’s market valuation. Later in the session, Germany’s Bundesbank will publish its monthly report.