What’s been happening?

Pound Sterling – UK Markets 

The British pound recovered Thursday’s losses against both the dollar and the euro on Friday but posted weekly losses. The only data from the UK showed that the business activity in the construction sector contracted at a slower pace than it did in June with the IHS Markit/CIPS PMI improving slightly to 45.3 in July. Commenting on the data, “The sector felt the pressure of challenging economic conditions and the impact of another disastrous drop in demand growth, as purchasing activity petered out and Brexit nibbled away at confidence and decision-making,” Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply (CIPS), said.

Meanwhile, according to several news outlets, British Finance Minister Sajid Javid has recently ordered HM Revenue & Customs (HMRC) to make preparations for a no-deal Brexit on October 31 its absolute top priority.

US Dollar – US Markets

The sharp drop witnessed in the 10-year US Treasury bond yields amid heightened fears of a prolonged trade conflict with China continued to weigh on the greenback on Friday and caused the US Dollar Index to continue to erase the FOMC-inspired gains it recorded on Wednesday and early Thursday. 

Responding to US President Trump’s announcement of 10% tariffs on the remaining $300 billion worth of Chinese goods, China’s new ambassador to the United Nations, Zhang Jun, said Trump’s action was irrational and irresponsible while adding that China will take necessary countermeasure to protect its rights. “China’s position is very clear that if the US wishes to talk, then we will talk, if they want to fight, then we will fight,” Zhang told reporters in New York, per Reuters.

Meanwhile, the monthly labour market report from the US revealed that the unemployment rate remained unchanged at 3.7% as expected in July and nonfarm payrolls increased by 164,000 following June’s 193,000 (revised down from 224,000) reading. According to the US Bureau of Labor Statistics’ press release, wage inflation, as measured by the average hourly earnings, ticked up to 3.2% on a yearly basis. Other data from the US showed that the University of Michigan’s Consumer Sentiment Index came in at 98.4 to fall short of the market expectation of 98.5 and factory orders in June expanded by 0.6% following May’s 1.3% contraction.  

Euro – European Markets

The shared currency closed the day modestly higher vs the dollar on Friday but struggled to stay resilient against the pound sterling. The data published by the Eurostat showed that retail sales in June increased by 1.1% to surpass analysts’ estimate of 0.2%, lifting the annual rate to +2.6% from +1%. Moreover, the Producer Price Index declined by 0.6% on a monthly basis in June and suggested that inflation in the medium-term is likely to remain soft.   

What’s coming up? 

UK: The IHS Markit will release the PMI report for the UK service sector on Monday. Investors will continue to pay close attention to political headlines.

US: Both the ISM and the IHS Markit will publish the non-manufacturing PMI data. Later in the day, the Federal Reserve will release the second-quarter Loan Officer Survey. 

EU: The European economic calendar will feature the IHS Markit Services PMI for the eurozone, Germany, Italy, Spain, and France. The Sentix Investor Confidence will be published on Monday as well.