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• British Pound Under Pressure as UK Business Investment Plunges 10.4%, Bodes Ill for Friday's UK GDP Revisions
• Euro Ends Day Higher After German Consumer Confidence Improves
• Commodity Dollars Jump on Late Rally in Oil Prices, Equities
US Dollar Dives in Low Volume Trading - US Personal Income and Spending Due Out on Friday
The US dollar experienced a very wild day of price action, which is indicative of the low volume trading we typically see at this time of year. In fact, the currency had spent much of the morning making headway, but between 14:00 ET and 14:30 ET the DXY index spiked lower, leaving it as the weakest of the majors. In US news, the final reading of US GDP was confirmed at -1.0 percent for Q2, which was in line with previous estimates. While this was actually better than forecasts that had called for a reading of -1.4 percent, the news failed to spur optimism in the markets, as evidenced by the subsequent drop in equities and carry trades. A breakdown in the GDP results showed mostly upward revisions, including personal consumption (-1.0 percent from -1.2 percent), exports (-5.0 percent from -7.0 percent), and government consumption (+6.4 percent from +5.6 percent). On the flip side, gross private investment was revised down to -24.4 percent from -20.4 percent, due mostly to steeper declines in nonresidential structures, while the change in inventories was revised down to -$159.2 billion from -$141.1 billion.
Meanwhile, initial jobless claims fell by 10,000 during the week ending August 22 to 570,000 while continuing claims tumbled by 119,000 during the week ending August 15 to 6,133,000, the lowest since the second week of April. Ultimately, the data suggests that next week's non-farm payrolls report could reflect another month of slowing job losses.
Upcoming income and consumption data for the US is projected to reflect fairly lackluster results on the economy. First, personal income in anticipated to rise by 0.1 percent for the month of July, but it is worth noting that past increases in income have been due purely to surging transfer payments, which include government benefits like unemployment, while wage and salary growth has fallen steadily (-4.7 percent in June from a year ago). Next, personal spending is forecasted to rise by 0.2 percent for the third straight month in July, but based on the steep decline we saw in consumer confidence during that period, this reading could be somewhat disappointing. If this is indeed the case, the US dollar could gain slightly on flight-to-safety. On the other hand, surprisingly strong results could hammer the currency even lower as carry trade demand rises.
British Pound Under Pressure as UK Business Investment Plunges 10.4%, Bodes Ill for Friday's UK GDP Revisions
The British pound was close to being the weakest of the majors on Thursday, second only to the US dollar, but this was only because of sudden spike lower in the greenback across the majors between 14:00 ET and 14:30 ET. Looking to the UK data on hand, total business investment fell much more than anticipated during Q2 at a rate of -10.4 percent, dragging the annual rate of growth down to -18.4 percent from -9.7 percent. The disappointing news highlights the impact of the recession and tight credit conditions on businesses in the nation, and bodes very ill for tomorrow's preliminary release of Q2 GDP. This index is not anticipated to be revised from previous estimates of a 0.8 percent quarterly contraction and a 5.6 percent annual contraction, the worst since recordkeeping began in 1955. The economic decline was led by a 2.2 percent drop in construction and a 0.7 percent slump in business services and finance, but the updated figures may reflect a greater deterioration in growth given the steep drop in investment. That said, with the Bank of England's latest meeting minutes showing that three Monetary Policy Committee members, including BOE Governor Mervyn King, voted in favor of a larger increase to their quantitative easing program than was actually implemented, a steeper than expected decline could lead the markets to price in another QE expansion at the end of the year and push the British pound lower. Additionally, worsened growth figures will only add to fears that the government's fiscal deficits will widen further, spurring speculation that the UK's AAA credit rating could be in danger, as Standard & Poor's already downgraded the credit outlook to negative from stable in May.
Related Article: British Pound Weekly Trading Forecast
Euro Ends Day Higher After German Consumer Confidence Improves
The euro didn't show much of a reaction to European data today, though most of it was positive for the currency. German consumer confidence rose to a 15-month high in September, as indicated by the GfK index, which increased to 3.7 from a revised 3.4 in August. The breakdown of the report showed income expectations jumped from 1.8 in July to 8.38 in August, largely due to the government's second quarter stimulus measures, while the gauge measuring consumers' willingness to buy increased from 25.1 to 31.1 in August. Adding to the mix, the preliminary reading of German CPI rose 0.2 percent in August, leading the annual rate of growth up to 0.0 percent from -0.5 percent. That said, the afternoon dive in the US dollar helped propel EURUSD higher once again, which may open the day up for a test of the 2009 highs.
Related Article: Euro Weekly Trading Forecast
Commodity Dollars Jump on Late Rally in Oil Prices, Equities
The Australian dollar, Canadian dollar, and New Zealand dollar were the strongest major currencies on Thursday, though their sharpest moves didn't come until after 12:00 ET. Indeed, after this time, oil suddenly shot higher and the US dollar plunged, benefiting the commodity dollars greatly. There was no formal trigger for the move, and the reality of the situation is that we're still in the summer doldrums, in which low trading volumes contribute to extremely choppy price action. Looking to last night's data, the New Zealand trade deficit narrowed to NZ$163 million in July from NZ$332 million, but this was due purely to a 6.2 percent slump in imports to NZ$3.34 billion as exports also slipped 1.6 percent to NZ$3.18 billion. The news didn't have much of impact on NZDUSD, as the results were largely in line with expectations.
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Written by: Terri Belkas, Currency Strategist for DailyFX.com