Dollar Remains Under Pressure Amid Dismal Data
What’s been happening?
Pound Sterling – UK Markets
The British pound continued to gather strength and posted daily gains against the dollar for the fourth straight day but struggled to outperform the shared currency. For the week, the currency recorded its largest percentage increase in dollar terms since late April.
During an interview with BBC Radio 4, Bank of England Governor Mark Carney said that many British were still not prepared for Brexit and explained that stockpiling was only a “short-term level” of preparation. On other Brexit-related headlines, German Chancellor Angela Merkel said that the Brexit Withdrawal Agreement with Britan, in their view, was final and reiterated that they were prepared to work with the new British Prime Minister. The only data from the UK on Friday showed that Public Sector Net Borrowing in May edged down to £4.463 billion from £6.150 billion in April but was largely ignored by the markets.
US Dollar – US Markets
After staging a technical correction during the first half of the day on Friday, the US Dollar Index, which tracks the greenback against a basket of six major currencies, lost its traction following the disappointing macroeconomic data releases and slumped to its lowest level since late March.
In its preliminary PMI reports, the IHS Markit revealed that the business activity in both the manufacturing and the service sectors in the U.S. is expected to expand at a softer pace in June than they did in May with the headline Manufacturing and Services PMI figures falling to 50.1 and 50.7, respectively. Commenting on the data, “Business activity edged closer to stagnation in June, expanding at the slowest rate since February 2016 and rounding off a second quarter in which the survey data point to the pace of economic expansion slipping to 1.4%,” said Chris Williamson, Chief Business Economist at the IHS Markit. “Business optimism has also become more subdued, with sentiment about the year ahead down to a new series low amid intensifying worries about tariffs, geopolitical risk and slower economic growth in the months ahead.”
Although other data from the U.S. on Friday showed that existing home sales in May increased by 2.5% to beat the market expectation of 1.2%, it did little to nothing help the greenback recover its losses.
Meanwhile, Minneapolis Fed President Kashkari in an essay said that he advocated for a 50 basis points rate hike during the FOMC meeting earlier in the week and Fed Governor Lael Brainard said that it seemed likely that rates will remain low in the future.
Euro – European Markets
The data published by the IHS Markit showed that the PMIs are expected to show slight improvements in June both in Germany and the eurozone and helped the shared currency continue to rise vs both the dollar and the pound sterling.
Manufacturing and Services PMIs in Germany rose to 55.6 and 45.4 in June’s flash estimate and both readings surpassed analysts’ forecasts. Assessing the data, “The June PMI confirms that German growth has stabilised at a moderate pace in the second quarter. The Composite Output Index trended at 52.5 over Q2, just above the prints for the previous two quarters,” said Trevor Balchin, Economics Director at the IHS Markit. Furthermore, with the Manufacturing PMI ticking up to 47.8 and Services PMI rising to 53.4, the Composite PMI in the eurozone improved to 52.1 from 51.8 in May.
What’s coming up?
UK: The Inflation Report Hearings will start in the UK on Monday.
US: Chicago Fed’s National Activity Index and the Dallas Fed’s Manufacturing Business Index will be featured in the U.S. economic docket.
EU: Germany’s Ifo Institue will release its sentiment report that includes Business Climate, Expectations, and Current Assessment indexes.