- USD climbs on positive revised growth and jobless claims data
- EUR dips on soft German unemployment data
- Commodity currencies slid as markets caution imminent Western military action into Syria
USD – The US dollar rose broadly against most major currencies, supported by positive US growth and jobless claims data that suggest the world's largest economy’s firmly improving. Revised data from the Commerce Department showed that the US economy accelerated more quickly than expected in the second quarter, growing 2.5%, thanks to a surge in exports. The government had initially estimated that GDP expanded at a rate of 1.7%. Meanwhile, the number of Americans filing new claims for unemployment benefits fell last week, suggesting a strengthening in job gains in August. The Labor Department reported that initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 331,000. The report could boost confidence that the economy is turning a corner. However, a full recovery from the 2007-09 recession is probably years away as the US jobless rate remains historically high at 7.4%. Nonetheless, improved growth and employment data has bolstered expectations the Federal Reserve will begin to scale back its asset-buying plan next month, a view that had supported the US dollar in recent weeks.
EUR – The euro plunged vs. the dollar today, down 0.8% in early trading on soft German unemployment data and easing capital outflows from emerging markets into euro-denominated assets. Although the German jobless rate remained flat at 6.8%, the Eurozone’s largest economy lost 7K jobs vs. a forecast of a 5K decline. Also released today was the German CPI data, which came in at 0.0% m/m for August and 1.5% y/y, vs. consensus estimates of 0.5% and 1.7%, respectively. These lower than expected CPI numbers, widely used to measure inflation, should help offset fears of rising oil prices.
GBP – The pound weakened today, down 0.2% but outperformed most other major currencies vs. the dollar. Yesterday, BoE governor Mark Carney strongly reaffirmed his commitment to the forward guidance laid out by the central bank earlier this month, highlighting that he has no intention of even considering raising interest rates until the UK economy breaks the 7% unemployment threshold. He also went on to say that the BoE sees only a “50/50” chance that unemployment will reach these levels within three years. Carney’s attempt to dampen expectations of a rise in UK rates came as no surprise to investors, who had pushed forward expectations of a rate hike thanks to a slew of positive UK economic data.
JPY – The yen dipped 0.9% vs. the dollar, currently trading around 98.50 as the currency continues to be torn between supporting factors such as inflows from emerging markets and general market risk aversion, and weakening factors like BoJ policy and sentiment. Today’s decline is mainly being driven by a stronger dollar as prospects of an imminent US attack on Syria weakened. Markets will turn their attention to Japan’s CPI data for July, set to be released later this afternoon.
Commodity Currencies – Market sentiment towards commodity-linked currencies was cautious despite a delay in the imminent Western military strike on Syria, driven by opposition in Britain and among some US lawmakers. However, President Barack Obama has told Americans that a military strike against Syria is in their interests, and congressional leaders are expected to be briefed today about further plans for an offensive response. In the oil markets, the reduced likelihood of an immediate supply disruption saw the price of oil drop, ending its strongest two-day gain since January 2012. The Canadian dollar slid further on the news as higher oil prices have shown to benefit the CAD. Domestically, Canada's current account gap widened to C$14.6 billion during the second quarter as exports struggled to gain traction and oil shipments to the United States fell. Meanwhile, the Australian and New Zealand dollars weakened as investors restrain from adding higher yielding assets to their portfolio, favoring a safe-haven approach until geopolitical risks calm down. However, further downside pressures continue to favor overall as the RBA is expected to hold rates steady next week while investors have a pessimistic outlook on the release of Australia’s retail sales, trade figures and GDP, also out next week.