Euro Gains Traction as the Safer Alternative
What’s been happening?
Pound Sterling – UK Markets
The British pound closed the day virtually unchanged against the dollar but posted big losses vs the euro on Monday despite the upbeat PMI data. According to the IHS Markit, the business activity in the UK’s service sector expanded at a more robust pace than expected in July with the PMI improving to 61.4 n July from 50.2. Commenting on the data,”An improved rate of growth in the service sector to the highest since October is welcome news after other PMI surveys showed the sharpest drop in manufacturing output for seven years and a construction sector that is mired in its deepest downturn for a decade,” said Chris Williamson, Chief Business Economist at the IHS Markit. “However, the overall picture is one of an economy that is only just managing to skirt recession, with July’s performance among the worst since the height of the global financial crisis in 2009.”
Meanwhile, British Prime Minister Boris Johnson’s spokesman today told reporters that the PM wanted to negotiate a new deal with the EU leaders and reiterated that they were absolutely clear that they would not want to create a hard border with N. Ireland.
US Dollar – US Markets
The dollar continued to weaken against its rivals on Monday over heightened fears over a prolonged trade conflict with China caused the yield on the 10-year Treasury bond to drop more than 7%. Several news outlets on Monday reported that China asked state buyers to stop importing agricultural products from the US. Moreover, with the Chinese Yuan’s exchange rate dropping to its lowest level since November following the latest intervention, concerns over a currency war resurfaced.
Commenting on that matter, “Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs – they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars!” US President Donald Trump tweeted out. “China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!"
Later in the day, the IHS Markit’s Services PMI came in at 53 to beat the market expectation of 52.2 but failed to help the dollar find demand. On the other hand, the ISM’s Non-Manufacturing PMI dropped to 53.7 in July and missed analysts’ estimate of 55.5.
Euro – European Markets
Despite the uninspiring macroeconomic data releases from the euro area, the shared currency gathered strength, attracting investors who want to stay away from both the dollar and the pound sterling amid ongoing uncertainties.
The IHS Markit’s data on Monday showed that the service sector lost a little bit of momentum both in the eurozone and Germany. Summarizing the findings of July PMI reports for the eurozone, “The service sector continued to sustain the expansion of the overall eurozone economy at the start of the third quarter, but there are signs that the scale of the manufacturing downturn is starting to overwhelm,” said Chris Williamson, Chief Business Economist at the IHS Markit.
Other data revealed that investor confidence continued to deteriorate with the Sentix Confidence Index slumping to -13.7 in August from -5.8 in July and missing the market expectation of -7.7 by a wide margin.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Tuesday.
US: The JOLTS Job Openings and the IBD/TIPP Economic Optimism Index will be published. St. Louis Fed President James Bullard is scheduled to deliver a speech as well.
EU: Factory orders from Germany will be the only data featured in the European economic docket on Tuesday.