Daily Currency Update

Get access to our expert daily market analyses and discover how your currency has been tracking with our exchange rate tools.

Dollar weakens after weaker than expected GDP print

By Alex Edwards

GBP/USD as confined to a fairly narrow range on Friday, as well as most of the week last week. If anything it trended ever so slightly higher on Friday following the release of weaker than expected USD Q2 GDP and the resulting sell off in the greenback. Like Thursday, there was no UK economic data released.

It’s a pretty quiet start to this week as far as data goes, too. It isn’t until Wednesday that we get UK Manufacturing PMI. Then on Thursday, arguably the most anticipated UK market event of the week/month/quarter falls due; the Bank of England make their monetary policy announcement. Expectations are for the central bank to raise the base rate from 0.5% to 0.75%, and as it’s not fully priced in we’re bound to see some volatility in GBP/USD following the announcement i.e. some upside if the bank hike and some downside if the bank hold, so the theory should go. Investors and traders will also be paying close attention to Governor Carney’s comments following the bank’s interest rate announcement too. If the bank hike, and he sounds dovish on future monetary policy, and upside in GBP/USD may be limited. If they don’t hike, and he takes a similarly dovish stance, then there’s a chance we may see a move on the 1.30 big figure. So the risk is to the downside, as they say.

The dollar weakened on Friday following the release of slightly weaker than expected US Q2 GDP data. The headline printed at 4.1% vs. forecasts for 4.2%, so only just shy of predictions. And even though it was the fastest pace of growth in four years traders were perhaps left a little underwhelmed after President Trump hinted at a bigger number earlier in the day. The Facebook stock headlines from last week probably didn’t help the greenback’s cause either. Disastrous second Q2 results triggered a fall in its stock-market valuation of almost $120bn, with the company telling investors that user growth had slowed in the wake of the Cambridge Analytica scancal.

Turning to this week, it’s quite a busy one for the US macroeconomic calendar starting on Tuesday with June Personal Consumption Expenditures (PCE) inflation report. ON Thursday we get the FOMC Statement, albeit the Fed is highly unlikely to raise rates. Finally on Friday the US Nonfarm Payroll report is released. The US is expected to have added 195K new jobs in July while the unemployment rate is expected to print at 3.9%.

The Euro spiked 0.3% on Friday, to close around 1.1657. EUR/USD was trading at session lows, around 1.1625, prior to the US Q2 GDP data. The overall number came in slightly weaker than expected and the USD dropped against most majors, including the euro.

EUR/USD is rallying a bit this morning, although it hasn’t yet been able to break through 1.17. Stronger than expected German regional inflation data released earlier this morning is no doubt behind the move. Further inflation, European prelim CPI and Flash GDP estimates are due to trickle through over the next 24-48 hours too.

The Australian Dollar failed to capitalise on broader USD softness Friday, again struggling to gain any real traction on move above 0.74 U.S cents. Attentions were squarely focused on the much-anticipated US Advance GDP print, ensuring the AUD remained range bound for much of the domestic session before enjoying a short 30 point jump when data printed below expectations at 4.1%. Touching intraday highs at 0.7412 the AUD edged lower into the close and opens this morning buying 0.7401 U.S Cents.

Despite missing market expectations US GDP presented its strongest quarterly performance in nearly 4 years underpinning recent US strength and adding additional support to calls for 2 further interest rate hikes before year end. While there is a broader concern the US will see the ill effects of trade frictions and suffer a slowdown in growth through the second half of the year we expect the AUD will continue to trade heavy and struggle on moves approaching 0.75. The widening gap in monetary policy expectation and the increasing US yield differential are hampering upside momentum and when coupled with the downward pressures plaguing the CNY there is little scope for extended AUD strength through the short and medium term.

Attentions now turn to Thursday’s Trade balance report for domestic direction while Tuesday’s Bank of Japan policy meeting poses a significant risk event with implications for global bond markets and broader currency flows.

The loonie strengthen marginally on Friday after the US GDP print. USD/CAD dropped 0.15% to close around 1.3055.

This week will bring back-to-back central bank policy meetings from Japan, the US and UK, which should provide further hints on how well the USD is positioned against other major currencies. We’ll also get GDP and manufacturing PMI data out of Canada. Keep an eye on the 1.30 and 1.3150 levels which should be acting as support and resistance in the short term.

The New Zealand dollar closed the week lower at 0.6789 against the US Dollar and was stuck in a 1c range all week last week, only moving between 0.6762 and 0.6850. With little to offer in the way of economic data, the NZD took its direction from events in offshore markets. We are likely to see the kiwi hover around the 68c handle today with the domestic calendar being very light. Traders will be eyeing up employment figures due out on Wednesday. Technical levels to watch, support sitting at 0.6760 with resistance around 0.6850 levels.