Dollar Recovers Modestly as EM Concerns Resurface
What’s been happening?
Pound Sterling – UK Markets
After gaining over 1% against both the euro and the dollar following the comments from the European Union (EU) Chief Brexit Negotiator Michel Barnier on Wednesday, the sterling lost some steam and struggled to preserve its momentum. In an interview with the German radio station Deutschlandfunk, Barnier said that a no-deal Brexit was part of the EU’s planning and reiterated that they needed to be prepared for all the possible outcomes. In the meantime, while speaking to reporters, Germany's finance minister Olaf Scholz stated that it was hard to tell if there would be an agreement on Brexit and urged businesses to be ready for the possibility of a hard-Brexit.
The monthly publication released by the Bank of England on Thursday showed that the total amount of net lending to individuals declined to £4 billion in July from £5.4 billion in June and fell short of the experts’ estimate of £5.5 billion. The underlying details of the report revealed that in the same period, consumer credit decreased to £871 million from £1.5 billion while mortgage approvals edged down to 64.768K from 65.374K and both figures missed the market expectations.
US Dollar – US Markets
Resurfacing concerns over the potential negative impact of the EM meltdown on the global economy amid the sharp devaluation of the Turkish Lira against the dollar helped the U.S. Dollar Index gain traction on Wednesday as investors started seeking refuge in safer assets. The index retraced its losses from Tuesday and Wednesday and rose toward the 95 handle. Furthermore, today’s macroeconomic data releases from the U.S. reminded the markets that the Fed was still on track to hike its policy rate twice more this year to provide an additional boost to the greenback.
According to the U.S. Bureau of Economic Analysis, the core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred gauge of inflation that excludes volatile food and energy prices, rose to 2% in July from 1.9% in June on an annual basis to match the analysts’ forecasts. On a monthly basis, the core PCE Price Index increased 0.2%. Additionally, personal spending and personal income rose 0.4% and 0.3% from June to July, respectively. The weekly report published by the U.S. Department of Labor showed that the initial weekly jobless claims came in at 213K for the week ending August 24 compared the market consensus of 214K.
Euro – European Markets
On Thursday, the European Commission announced that the Economic Sentiment Indicator dropped to 111.6 in the euro area in August from 112.1 in July while staying unchanged in the EU at 112.3. “The decrease in the euro-area sentiment indicator resulted from a marked deterioration of confidence among consumers and a milder decrease in the services sector, which were only partly offset by increases in the retail trade and construction sectors. Confidence in the industry sector remained broadly stable. Amongst the largest euro-area economies, the ESI remained virtually unchanged in Germany (-0.1), while it decreased in France (-1.3), Italy (-0.8), Spain (-0.7) and the Netherlands (-0.5),” the EC explained.
On the other hand, Destatis reported that the preliminary estimate of the inflation in Germany remained steady at 2% on a yearly basis in August while the Harmonized Index of Consumer Prices fell to 1.9% from 2.1% to miss the market consensus of 2%. Other data from Germany revealed that the unemployment rate stayed unchanged at 5.2% as expected.
What’s coming up?
UK: The only data featured in the UK economic docket on Friday will be Nationwide Housing Prices.
US: The ISM-Chicago will release its Purchasing Managers Index, and the University of Michigan will publish the final reading of Consumer Sentiment Index for August.
EU: The Eurostat will announce the eurozone unemployment rate and inflation figures. The CPI and the core-CPI are both expected to remain unchanged at 2.1% and 1.1% respectively.