EUR Extends Its Gains vs USD at the Start of the Last Week of Summer

Aug. 27, 2018 (Western Union Business Solutions) – The U.S. dollar started the week under pressure against the EUR with action subdued by a U.K. holiday. The dollar did not attract bids against big peers from Europe, Asia and Canada though it registered gains versus most emerging markets, led by a 3% jump versus the Turkish lira. Mexico’s peso was the exception is it rallied on signs that U.S. and Mexican authorities were making progress on updating Nafta. The buck is coming off a week of underperformance triggered in part by President Trump’s disagreement with the Fed raising interest rates. A signal last week by Fed Chairman Jerome Powell to gradually raise interest rates also undercut the buck by helping to stoke a stock rally that dampened demand for safer plays like the U.S. currency. The week ahead includes U.S. numbers on consumer confidence, revised second quarter growth and consumer spending.

 

GBP

 

Sterling got in the holiday spirit with a firm start to the week which allowed the U.K. unit to hold above recent 14-month lows. British markets are closed today for a bank holiday. A partial reversal in the dollar’s upswing has helped to alleviate downward pressure on the pound. Meanwhile, reports of tentative progress with Brexit negotiations between Britain and Brussels also translated into a firmer pound. A lack of U.K. data this week could see sterling look to Brexit developments and dollar movements for direction.

 

CAD

 

Canada’s dollar kept to a well-worn range against the greenback with holiday-subdued trading resulting in lackluster action. The market will use the coming week to fine tune expectations for the next increase in area borrowing rates. Thursday’s print of second quarter growth should help shed light on whether a rate hike from 1.50% comes as soon as September. Forecasts call a 3% annual rise in Q2 growth which would be the fastest pace in a year. The BOC next meets in 9 days on Sept. 5 with forecasts suggesting a less than 50% of a rate hike.

 

MXN

 

The peso powered to its strongest in two weeks on reports of the U.S. and Mexico making progress in updating Nafta. Recent uncertainty over the fate of Nafta has been a source of negativity toward the peso given that Mexico sends most of its exports north of the border. Upside for the peso was checked somewhat by emerging market weakness led by the Turkish currency’s renewed slide after markets there returned from an extended holiday.

 

USD

 

The dollar was mostly steady after a week of underperformance stemming from President Trump lambasting the Fed for raising rates while the central bank indicated that future rate increases would likely be gradual. Mr. Powell’s keynote speech in Jackson Hole, Wyo. last week was interpreted a dovish, noting a lid on inflation which effectively put one on the dollar. Thursday could prove the deceive day of the week for the dollar with data on personal income and spending and the Fed’s main gauge of inflation. Core inflation is forecast to tick up to 2% in July. Barring an upside surprise, the data may not be enough to excite dollar bulls given that the Fed has signaled a tolerance of allowing inflation to exceed its goal after missing it for many years.

 

EUR

 

The euro rose to its highest in 3 weeks against the greenback, buoyed by better than expected data on German business optimism. The Ifo survey topped forecasts with a 103.8 reading in August which offered evidence of modestly improved U.S.-German trade relations easing a headwind on the bloc’s biggest economy. Friday looms as the week’s most important day for the euro zone when it publishes central bank-impacting numbers on inflation and unemployment.

 


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