• A$ suffered throughout the week as US data reads stronger;
• Sterling suffered for fourth week against greenback as economic data reads softer;
• Euro traded resiliently despite weaker inflation data;
• Greenback broadly supported throughout the week as US economy springs back to life.
Trade last week was largely dictated by US data releases with little to follow on the local economic calendar. Data was thin at the beginning of the week and markets traders appeared somewhat reluctant to take risk ahead of key event risks from the US. A bearish report from Goldman Sachs early in the week which indicated that the RBA will have no choice but to cut interest rates towards the end of the year weighed on the local unit. Overall, an Argentinian debt default and geopolitical uncertainty favoured the safe haven greenback throughout the week. Combined with stronger than expected US data, the Aussie dollar slid over $0.01 cents against its US counterpart, marginally higher on Friday afternoon following Chinese PMI and softer than expected non-farms from the US.
Data from the UK in recent weeks has certainly disappointed and in the wake of stronger overseas data, the pound has fallen for four consecutive weeks against the greenback marking its longest losing streak in over 12 months. After the pounds outperformance of all major peers over the last 18-months, it seems as though a stronger currency has impacted on the country’s export advantage, a gauge of UK manufacturing and consumer confidence both reading softer than forecasts had suggested. UK data has painted a pretty picture over the last 12 months and is now starting to show cracks. Output has failed to keep pace with rapid population growth and GDP per capita has suffered and put pressure on the average income per person. This is the bigger picture that the Bank of England will be looking at when considering a rate hike and markets are becoming increasingly aware of this.
Weakening inflation across the Eurozone remains priority for the ECB and yet another slide in YoY CPI announced on Thursday is testament to this. The Euro remained resilient despite the drop in inflation again as markets understand that recent measures to revive the EU economy will take some time to come to fruition. There is no doubt that for the European economy to recover the ECB needs to achieve a weaker Euro, however we would expect this to happen gradually and naturally over time as overseas Central Banks begin to raise rates whilst the ECB remain dormant.
Economic releases from the US stole the headlines last week with GDP, FOMC meetings and unemployment data on the docket. A first quarter contraction in US growth was brushed under the carpet after the US economy appears to have bounced back to life in the second quarter as confirmed by Wednesday’s GDP data. The US dollar rose the most in six months versus peers as bullish bets that the Fed will raise rates in the first half of 2015 were hiked. Friday’s non-farm payrolls confirmed that the US added 209k jobs in July, missing forecasts and consistent with the Fed’s view that there is slack in the labour market. Annual unemployment now stands 0.1% higher than in June and average hourly earnings remain under pressure.
[B]Tom Williams
Sales Trader[/B]