Dollar Extends Gains Against European Currencies
What’s been happening?
Pound Sterling – UK Markets
The British pound fell to its lowest level against both the dollar and the euro since early January on Tuesday amid fears of a no-deal Brexit and fresh signs of economic weakness in the UK.
The British Retail Consortium (BRC) on Tuesday reported that average sales growth weakened to 0.6% in the 12 months to June, the slowest since it began its records in 1995, per Reuters. Commenting on the data, "Overall, the picture is bleak: rising real wages have failed to translate into higher spending as ongoing Brexit uncertainty led consumers to put off non-essential purchases," said BRC Chief Executive Helen Dickinson. Meanwhile, Bloomberg in its latest survey announced that economists were expecting the UK economy to shrink in the second quarter of 2019 for the first time since 2012. “The latest poll follows a dismal week of reports in the U.K., with Purchasing Managers’ Indexes showing the dominant services industry barely growing in June, and both construction and manufacturing sectors suffering outright contractions,” Bloomberg noted.
On political headlines, Opposition Labour Party's leader Jeremy Corbyn on Wednesday said that they are challenging the next British Prime Minister to put their Brexit deal to a second referendum.
US Dollar – US Markets
The greenback preserved its strength and the US Dollar Index closed the day in the positive territory for the fifth straight day on Tuesday. The only data from the U.S. showed that JOLTS Job Openings in May edged higher to 7.323 million from 7.372 million in April but fell short of the market expectation of 7.470 million. Nevertheless, markets largely ignored this data and stayed focused on receding hopes of the Fed adopting an aggressive dovish stance. According to the CME Group FedWatch Tool, markets are seeing no chance of a 50 basis point rate cut in July.
Meanwhile, in an interview with the Wall Street Journal, Philadelphia Fed President Harker argued that he did not see a case for a rate cut. "Though slowing global growth and uncertainty over trade policy have created clear risks to that outlook," Harker further added. In his prepared remarks, Chairman Powell didn’t comment on the policy outlook or the state of the economy.
Euro – European Markets
The shared currency weakened against the dollar on ECB but was able to outperform the pound sterling. The only data from the euro area showed that retail sales in Italy contracted by 0.7% on a monthly basis in May after staying unchanged in April and missed the market expectation for an increase of 0.7% by a wide margin.
Later in the day, while responding to questions submitted on Twitter, European Central Bank chief economist Philip Lane reiterated that the ECB had the tools if more easing was needed."Inflation remains below target and there are downside risks to the growth outlook," Lane explained. "Pro-active measures (including negative rates) are the surest way to ensure inflation climbs to our aim." Similarly, during an interview with BFM Business TV, "Theoretically, we could also resume making net asset purchases, again if warranted by the circumstances," European Central Bank Governing Council member Benoit Coeure stated.
What’s coming up?
UK: The UK’s Office for National Statistics on Wednesday will publish the manufacturing production, industrial production, trade balance, and the monthly GDP growth data.
US: Wholesale inventories will be featured in the U.S. economic docket, which is likely to be ignored. Later in the day, the FOMC will release the minutes of its June meeting.
EU: Industrial production from Italy will be released on Wednesday.