Dollar Gathers Strength on Surging Bond Yields, Growth Data
What’s been happening?
Pound Sterling – UK Markets
The British pound continued to weaken against the dollar on Thursday but closed the day virtually unchanged vs. the euro. In the absence of significant macroeconomic data releases from the UK, investors remained focused on political headlines.
British opposition Labour Party leader Jeremy Corbyn announced that they will be trying to politically prevent British Prime Minister Boris Johnson from shutting down parliament. "We should legislate rapidly to prevent a no-deal Brexit," Corbyn added. "We will put a vote of no confidence at the appropriate moment." Earlier in the day, Labour’s Finance policy Chief and the second most powerful man, John McDonnell, said that they will use every mechanism they can to stop a no-deal Brexit. On the other hand, European Union chief Brexit negotiator, Michel Barnier, reaffirmed the EU’s stance. "PM Boris Johnson has said that the UK will leave the EU on 31 October. In all circumstances, the EU will continue to protect the interests of its citizens and companies, as well as the conditions for peace and stability on the island of Ireland. It is our duty & our responsibility," Barnier tweeted out.
US Dollar – US Markets
The dollar gathered strength against both the euro and the pound sterling on Thursday boosted by rising US Treasury bond yields and upbeat growth data from the US. According to Reuters, Gao Feng, spokesman for China's commerce ministry, called upon the Trump administration to cancel the new tariffs to continue negotiations in Washington in September. Later in the day, "There is a talk scheduled for today at a different level," US President Donald Trump Fox News Radio. The 10-year US Treasury bond yield rose more than 3% and the US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, touched its highest level since August 1.
The US Bureau of Economic Analysis (BEA) in its second estimate announced that the real gross domestic product (GDP) in the second quarter expanded by 2%. Although this reading was lower than the market expectation of 2.1%, it matched the market expectation. "The revision primarily reflected downward revisions to state and local government spending, exports, private inventory investment, and residential investment that were partly offset by an upward revision to personal consumption expenditures (PCE)," the BEA said in its press release. "Imports which are a subtraction in the calculation of GDP were unrevised."
Euro – European Markets
The mixed macroeconomic data releases from the eurozone on Thursday failed to help the shared currency find demand. The latest business and consumer survey data published by the European Commission showed that the Consumer Confidence Index dropped to -7.1 in August from -6.6 and the Services Sentiment fell to 9.3 from 10.6. On the other hand, the Business Climate Index improved to 0.11 from -0.11 and the Industrial Confidence recovered to -5.9 from -7.3 in July.
Other data revealed that inflation in Germany, as measured by the Consumer Price Index (CPI), fell to 1.4% on a yearly basis in August from 1.7% in July and came in lower than the market expectation of 1.5% while the harmonized CPI ticked down to 1% from 1.1% in the same period.
What’s coming up?
UK: Nationwide Housing Price Index and the Bank of England’s Consumer Credit report will be released on Friday.
US: The US Bureau of Economic Analysis will release the Federal Reserve’s preferred gauge of inflation, Personal Consumption Expenditures (PCE) Price Index. The University of Michigan’s Consumer Confidence Index will be featured in the US economic docket as well.
EU: The Eurostat will publish the inflation and labour market data for the eurozone on Friday.