USD rebounded against most major currencies despite a fall in wholesale data
EUR weakened but trades near 2-month highs
Commodity currencies ended higher after a second day of upbeat Chinese data
USD - The US dollar rebounded against most of its major counterparts despite a fall in US wholesale inventories. Inventories fell to $499.7 bn at the end of June, down 0.2% from the revised May level. Sales at wholesalers rose 0.4% in June after increasing 1.5% in May. The rise in June was below economists' expectations for a 0.7% gain. The inventories for June durable goods were virtually unchanged from May, but were up 4.3% from a year ago. Look for the dollar to hold close to current ranges ahead of import and export, retail sales, inflation and consumer confidence data all due out next week. As we approach next month’s Fed meeting, though, look for the dollar to push higher as analysts expect the Fed. to announce a reduction in its $85 billion per month bond buying program.
EUR - The euro is down today but is still trading near a two-month high heading into the weekend. A light economic news day, the only fundamental data release of note from the Eurozone was weak industrial and manufacturing production in France. The euro has firmed vs. the greenback this week due to strong manufacturing numbers from Germany and improving sentiment towards a long-term Eurozone recovery. However, some analysts expect the euro overall to resume a weakening trend vs. the dollar as the ECB is expected to keep interest rates at historical lows longer than the Fed is expected to. Next week brings a host of important economic releases, including the Eurozone GDP data on Wednesday and the CPI numbers on Friday.
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GBP - The pound is hovering near a seven-week high and is up over 1.5% on the week overall vs. the dollar on expectations of stronger economic UK data and a shortened timeline for a potential interest rate hike by the BoE. Earlier in the week, the BoE issued “forward guidance” on its monetary policy, stating that it would conditionally tether its interest rate decisions to UK unemployment and inflation levels. Consequently, next weeks’ UK jobs report and CPI data will garner more attention than usual. Markets will also be focused on the BoE minutes set to be released Wednesday, looking for any additional clues as to when the BoE may start tightening its policies.
JPY – The yen continued to strengthen vs. the greenback, currently trading around 96.25 and approaching a seven-week high. Yesterday the BoJ voted unanimously to maintain its loose monetary policies, falling in line with market expectations as Japan continues to try to weaken its currency in order to boost exports and reduce its current account surplus. The finance ministry also released Japan’s national debt numbers, which rose to $10 trillion, garnering some attention as government debt continues to grow. Next week, markets will be focused on the release of Japan’s Q2 GDP estimate, with a consensus calling for a rise of 0.9% q/q.
Commodity Currencies – Commodity-linked currencies edged higher and oil prices rebounded as China's economy showed more signs of stabilizing. The run of upbeat Chinese data in the past two days has helped ease investor concerns over previous signs of slowdown in the world's second-biggest economy. Factory output in China rose 9.7% in July, beating forecasts, and retail sales grew 13.2% while inflation held steady. The data added to Thursday's trade figures showing exports from the Chinese economy running at a stronger-than-expected pace. As such, the price of gold and crude oil climbed from yesterday’s close, up 0.27% and 0.63% respectively. Meanwhile, the AUD rose 0.89% on the day, benefiting from the increased global demand for oil and iron ore. Australia’s Port Hedland Port Authority released this week that exports of iron ore rose 36% y/y and climbed 17% for the fiscal year ending June 30th. The CAD slipped half a cent against the USD directly after the news of an unexpected fall in domestic employment data for July but rebounded to reach its highest level in 10-days. Public sector job losses pushed the economy to shed a net 39,400 jobs during the month, while economists expected a 10,000 net gain. Despite the country’s volatile employment read, the loonie has moved from external developments like global markets and monetary policy in recent weeks.
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