What’s been happening?

Pound Sterling – UK Markets 

The British pound erased a large portion of the gains it posted against both the dollar and the euro on Wednesday hurt by disappointing data and revived concerns over a deadlock in Brexit negotiations causing a no-deal exit. The data published by the Confederation of British Industry on Thursday showed that retail sales declined for the third consecutive month in July. Commenting on the data, “Whilst last year’s summer strength in retail sales is driving some of the comparative weakness this year, it is still hugely concerning that sales have fallen for the longest period in almost eight years,” said Rain Newton-Smith, CBI Chief Economist. “Despite the recent pick-up we’ve seen in households’ real earnings, the sun is clearly not shining on the British High Street.”

Later in the day, a spokeswoman for the European Commission told reporters that during his meeting with British Prime Minister Johnson, European Commission President Juncker said that the Withdrawal Agreement was the "best and only possible agreement." In the meantime, addressing lawmakers in parliament, Johnson said that he hoped the EU will rethink their refusal to rethink the deal. "If they do not we will have to leave without an agreement," Johnson added.

US Dollar – US Markets

The US Dollar Index, which gauges the USD’s value against a basket of six major currencies, lost its traction amid the sharp upsurge witnessed during European Central Bank President Draghi’s press conference earlier in the day but staged a rebound during the American trading hours and closed the day in the positive territory supported by the upbeat data releases.

The US Census Bureau on Thursday announced that durable goods orders expanded by 2% on a monthly basis in June following May’s 2.3% contraction and surpassed the market expectation of 0.7%. Moreover, weekly jobless claims fell to 206K in the week ending July 19 to come in better than analysts’ estimate of 219K. In addition to the strong data, the 10-year US T-bond yield gained nearly 2% to fuel the currency’s recovery. 

Earlier in the day, Reuters reported that over 95% of 111 economists it polled were expecting the Federal Reserve to opt-out for a 25 basis points rate cut next week.

Euro – European Markets

As widely expected, the European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.40%, respectively. In its policy statement, the ECB repeated that it stands ready to adjust all of its instrument to ensure that inflation moves towards the bank’s target in a sustained manner. "If the medium-term inflation outlook continues to fall short of its aim, ECB is determined to act, in line with its commitment to symmetry in inflation aim,” the ECB noted and explained that it has tasked relevant Eurosystem committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as design of a tiered system for reserve remuneration, and options for size and composition of potential new net asset purchases.

Although the statement’s tone weighed on the euro and caused it to slump to its weakest level against the dollar in more than two years, President Draghi sounded neutral rather than dovish and helped the shared currency recover its losses. 

While responding to questions from the press, Draghi stated that the Governing Council did not discuss a rate cut at this meeting and argued that the risk of a recession in the euro area was still very low. "If there were significantly worsening in the euro area, significant fiscal policy becomes of the essence," Draghi said. "Want to see the next projections before taking action." At the end of the day, the euro was virtually unchanged on a daily basis vs the dollar while it was modestly higher against the pound sterling.

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the UK on Friday.

US: The US Bureau of Economic Analysis will release its first estimate of the second-quarter GDP growth, which is expected to slump to 1.8% on a yearly basis from 3.1% in the first quarter.

EU: Import Price Index from Germany will be the only data featured in the European economic docket.