Dollar Rebounds as Markets Hesitate over Fed Rate Cuts
What’s been happening?
Pound Sterling – UK Markets
The pound sterling extended its losses vs. the greenback and posted its lowest weekly-close of 2019 at 1.2588 while posting small losses against the shared currency. There no macroeconomic data releases from the UK on Friday and political headlines remained in the limelight.
Speaking on Friday, Boris Johnson, one of the candidates to succeed British Prime Minister Theresa May, reiterated that he didn’t want a no-deal Brexit as the final outcome but added that it was their responsibility to be prepared for it. Regarding the backstop issue, “Problems of Irish backstop can be solved by having checks away from the border,” Johnson said. “There are ways of doing this that do not require a hard border in Ireland.”
Meanwhile, in a recently published study, the European Commission said that it was clear that a withdrawal of the United Kingdom without an agreement would have a serious negative economic impact, and that this impact would be proportionally much greater in the United Kingdom than the EU27 member states.
US Dollar – US Markets
The U.S. Dollar Index, which gauges the USD’s value against a basket of six major currencies, rose for the third straight day on Friday and reached its highest level since early July as the upbeat macroeconomic data releases from the U.S. weighed on the probability of the Fed making a dovish shift in its forward guidance in next week’s FOMC meeting.
The U.S. Census Bureau on Friday reported that retail sales in May increased by 0.5% after rising 0.3% in April. Moreover, following April’s 0.4% contraction, industrial production in May expanded by 0.4% to surpass the market expectation for an increase of 0.2%. Moreover, capacity utilization in the same period improved to 78.1% from 77.9%.
Although the University of Michigan’s Consumer Sentiment Index dropped to 97.9 in June’s advance estimate from 100 in May, the greenback didn’t have a difficult time preserving its strength. "In early June, consumer sentiment reversed the May gain due to tariffs as well as slowing gains in employment," explained Richard Curtin, Surveys of Consumers chief economist. "Some of the decline was due to expected tariffs on Mexican imports, which may be reversed in late June, but most of the concern was with the 25% tariffs on nearly half of all Chinese imports."
Euro – European Markets
The shared currency suffered heavy losses against the dollar on Friday and remained resilient vs. the British pound. The data published by the Destatis showed that the wholesale price index in May rose 0.3% to fall short of the market expectation of 0.8%. Other data revealed that industrial sales in Italy contracted by 1% on a monthly basis in April to miss analysts’ estimate for a growth of 0.9% by a wide margin. Regarding Italy’s finances, the European Union (EU) Commissioner Pierre Moscovici said that they need to see more commitments from Italy if they want to avoid the disciplinary procedure over the budget.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Monday and investors will remain focused on the political headlines.
US: NAHB Housing Market Index and the NY Empire State Manufacturing Index will be featured in the U.S. economic docket.
EU: The Eurostat will release the first-quarter labour cost data on Monday.