US data was mixed with a record Q2 GDP decline slightly better than expected while higher than expected jobless claims caused some concern over employment trends.
US data was mixed with a record Q2 GDP decline slightly better than expected while higher than expected jobless claims caused some concern over employment trends. The dollar came under further sustained pressure after the European close and the slide accelerated in Asia with the dollar index at 26-month lows. EUR/USD surged to fresh 26-month highs near 1.1900 before a slight correction.
Risk appetite was fragile amid earnings fears and US political uncertainty as Trump called for an election delay. Equity markets lost ground, especially in Europe, although China was resilient.
Sterling made net gains despite risk aversion with GBP/USD at 19-week highs.
The latest German labour-market data recorded an unemployment decline of 18,000 for July following a 68,000 increase the previous month and much stronger than consensus forecasts of a further 42,000 increase. German GDP, however, registered a contraction of 10.1% for the second quarter following a first-quarter decline of 2.0% and compared with consensus forecasts of a 9.0% contraction. Markets continued to monitor regional coronavirus developments.
According to the advance reading, US second-quarter GDP contracted at an annualised rate of 32.9% after a 5.0% decline for the first quarter. This was the sharpest quarterly contraction on record by a substantial margin, although slightly better than consensus forecasts. There was a sharp decline in consumer spending, especially on services, while investment slumped on the quarter. There was, however, a big boost to Federal government spending. Prices declined 2.1% on the quarter, maintaining underlying disinflation pressures which will encourage the Federal Reserve to maintain a very expansionary policy.
Initial jobless claims increased to 1.43mn in the latest week from a revised 1.42mn although this was slightly below market expectations. Continuing claims also increased to 17.02mn from 16.15mn previously, maintaining concerns that the economy was slowing. Overall, there were fresh reservations over the US recovery profile.
The dollar lost ground following the data with EUR/USD making a fresh challenge on the 1.1800 area against the US currency. Commodity currencies, however, were unable to make gains as risk appetite deteriorated. After a brief pause, the dollar slumped later in New York with EUR/USD at 26-month highs near 1.1900 before a slight retracement.
The dollar was unable to gain significant traction ahead of the New York open and the data releases also reinforced recovery concerns. US yields moved lower with the 5-year yield hitting a record low and the 10-year yield also dipped towards 3-month lows which undermined US dollar support. The US posted a record daily coronavirus death toll, but the number of new cases has eased slightly. The dollar initially resisted further selling and USD/JPY traded around 105.0 with limited yen support.
Markets were unsettled by Trump’s call that the Presidential election should be postponed.
Although there would need to be congressional support for a delay, markets fretted over the risk of instability. There was further wrangling over US fiscal policy with three senators introducing a jobless aid extension bill. Treasury Secretary Mnuchin stated that some progress had been made and that talks will continue over the weekend, but that there were still substantial differences.
Market sentiment remained negative and the US currency dipped sharply in Asian trading on Friday which triggered Ministry of Finance comments that forex stability is important and it was watching markets with a sense of urgency. Japanese industrial production recovered 2.7% in July after an 8.9% slide the previous month and China’s PMI index edged higher to 51.1 from 50.9 previously. The dollar overall remained under pressure with fresh 4-month USD/JPY lows near 104.20.
There were no significant data releases on Thursday as global trends dominated. Sterling was notably resilient despite a notable slide in risk appetite during the day with the UK currency able to gain ground despite a sharp decline in European equities. The UK currency was also resilient despite an underlying lack of yield support with a strong suspicion that month-end position adjustment was an important factor. GBP/USD strengthened to highs near 1.3050 and registered a gain for the 10th successive session.
A new limited lockdown in areas of Northern England had little market impact. The CBI also warned that companies would need more time to prepare for any Brexit without a trade deal and 75% of firms were concerned over the risk of a further economic shock. The UK currency, however, maintained a strong tone and GBP/USD traded at fresh 4-month highs above 1.3130 as the US currency was subjected to further selling while GBP/EUR advanced to the 1.110 area.
There will be the risk of erratic and volatile trading on Friday due to the impact of month-end position adjustment.
|06:00||JPY Housing Starts (Y/Y)(JUN)||-15.30%||-12.30%|
|07:00||EUR German Retail Sales (Y/Y)(JUN)||3.00%||3.20%|
|07:00||EUR German Retail Sales (M/M)(JUN)||-3.30%||12.70%|
|07:00||GBP Nationwide House Prices (Y/Y)(JUL)||-0.30%||-0.10%|
|07:00||GBP Nationwide House Prices (M/M)(JUL)||-0.10%||-1.60%|
|07:30||CHF Retail Sales (Y/Y)(JUN)||-||6.60%|
|10:00||CPI (EU Norm) Prelim MM(JUL)||0.10%||0.10%|
|10:00||CPI (EU Norm) Prelim YY(JUL)||-0.50%||-0.20%|
|10:00||CPI (EU Norm) Final MM*(JUL)||-||-0.30%|
|10:00||CPI (EU Norm) Final YY*(JUL)||-0.10%||-0.40%|
|10:00||Euro-Zone Core CPI (Y/Y)(JUL 01)||-||0.80%|
|10:00||Euro-Zone CPI (Y/Y)(JUL)||0.20%||0.30%|
|10:00||Euro-Zone GDP (Q/Q)||-11.20%||-3.60%|
|10:00||Euro-Zone GDP (Y/Y)||-13.90%||-3.10%|
|13:30||USD PCE Core Price Index(M/M)(JUN)||0.20%||0.10%|
|13:30||USD PCE Core Price Index (Y/Y)(JUN)||1.00%||1.00%|
|13:30||CAD GDP (M/M)(MAY)||3.50%||-11.60%|
|13:30||CAD RMPI (M/M)(JUN)||6.90%||16.40%|
|14:45||USD Chicago PMI(JUL)||43.9||36.6|
|15:00||USD Michigan Consumer Sentiment(JUL 08)||-||73.2|