Dollar fell sharply across the board on Friday as report showed the U.S. economy shrank less than economists forecast and business activity improved in the Midwest region, reducing the demand for the greenback as a safe-haven asset. The ICE Futures U.S. dollar index slid 1.2% to a fresh 2009 low at 78.22. U.S. gross domestic product fell at a 1.0% annual rate in Q2, after tumbling 6.4% in Q1, the biggest decline since early 1982. Chicago PMI in July came in better than expected at 43.4, this was the strongest month since last September after Lehman Brothers’ failure, the index in June was 39.9. However, consumer spending, which accounts for over two-third of U.S. economic activity, fell at a 1.2% rate in the second quarter. In addition, U.S. President Barack Obama said on Friday that he was ‘guardedly optimistic’ about the direction of the U.S. economy after GDP figures indicated the economy shrank modestly in the second quarter.
Euro strengthened against the greenback to an intra-day high of 1.4280 as upbeat U.S. Chicago PMI data encouraged investors to become more risk-aggressive. Earlier, eurozone unemployment rate in June rose to a 10-year high of 9.4% in June compared to consensus expectations of 9.7%, while July inflation came in –0.6% versus economists’ forecasts of –0.4%. The lower-than-expected unemployment rate coupled with a significant fall in prices could mean more purchasing power for consumers, which is a piece of welcome news for efforts to fight the worst economic crisis, giving support to the single currency.
The British pound rallied to 1.6733 against the dollar in New York afternoon as risk appetite improved, this level came very close to this year high made in June at 1.6745. Trader cited that month-end flows as investors rebalanced portfolios weighed on the dollar. In addition, the GFK survey index, a gauge used for British consumer confidence, held steady in July at –25, showing Britons were more upbeat view of the economy as a whole. The reading is up from –39 a year ago. Earlier in European afternoon, the British pound retreated from 1.6575 after the news that Fitch affirmed U.K. 'AAA' rating with a stable outlook but noted that U.K.'s debt-to-GDP ratio is rising at the most rapid rate among AAA countries and warned that U.K. fiscal policy needs to be more aggressive. Cable briefly fell to 1.6472 in New York morning, however, the pair rallied from there on dollar’s broad-based weakness after the release of better-than-expected Chicago PMI data.
Oil jumped more than 4% and settled at $69.45 per barrel on Friday and August gold futures ended up $18.5 or 1.97% at $955.80 an ounce. The surge in commodity prices boosted the Australian, New Zealand and Canadian dollars. Aud/usd hit fresh 2009 high at 0.8367, nzd/usd rose from 0.6515 to 0.6627 while usd/cad slid to 1.0763, its 09' low was 1.0750 made on Tuesday earlier this week.
The International Monetary Fund said on Friday that the dramatic fall in U.S. economic output ‘seems to be ending’ but a recovery is likely to be slow and gradual due to over weak jobs and housing markets. The IMF board also stated that U.S. policy makers need to complete the task of stabilisation, develop exit strategies from the stimulus programs, strengthen financial regulation and cut budget deficits in the medium term.
Monday will be a holiday in Canada. Data to be released next week include German retail sales, Switzerland PMI, German, eurozone, and U.K. manufacturing PMI, U.K. housing price, U.S. construction spending, ISM manufacturing on Monday, Australia retail sales, house price index, RBA rate decision, Switzerland CPI, U.K. construction PMI, eurozone PPI, U.S. PCE, personal income and spending, pending home sales on Tuesday, Australia trade balance, German, eurozone and U.K. service PMI, U.K. industrial production, manufacturing production, eurozone retail sales, U.S. ADP employment, factory orders, ISM non-manufacturing on Wednesday, New Zealand unemployment rate, Australia unemployment rate, Japan leading indicator, German factory orders, U.K and ECB rate decisions, Canada building permits, U.S. Jobless claims on Thursday, Switzerland jobless rate, German import and export data, trade balance, U.K. PPI, German industrial production, Canada unemployment rate, U.S. unemployment rate, non-farm payroll and Canada Ivey PMI on Friday.