Good Morning All;
we’ll see now a new forex weekly analysis.
Last Week’s Highlights
Q2 GDP revised up to 1.4% in US, 0.7% in UK
Deutsche Bank concerns weigh on euro
Fed speakers remain divided on when to raise rates
This Week’s Highlights
Article 50 trigger date deadline weighs on pound
US September jobs report
Manufacturing and Services data from US, UK, Eurozone
Sterling fell further against both the euro and the dollar last week, bringing into focus its post-Referendum lows, in part due to renewed attention on remaining Brexit uncertainties. Sterling fell to 1.1472 against the euro, just shy of its three-year low of 1.1459, and to 1.2915 against the dollar, not quite hitting its August low of 1.2866. The pound weakened around comments from MPC Member Shafik on Wednesday as Shafik indicated likely support for additional stimulus measures “at some point”. Of the week’s data, the UK’s Q2 Current Account deficit was narrower than expected at £28.7 billion. Consumer Confidence and Business Investment both rose, the former returning to pre-Referendum levels with a reading of -1, up from -12 in July. UK Q2 was revised up to 0.7% and to 2.1% on an annualised basis.
The pound started off the week on the back foot, trading lower after the UK government said over the weekend that it would trigger Article 50 by the end of March 2017. The pound fell to a new three-year low against the euro, around 1.1432, and broke below 1.2900 against the dollar, falling to around 1.2846. Sterling received limited support from an unexpected increase in Manufacturing PMI to 55.4, its highest level since mid-2014. Other key releases include Construction and Services PMIs. Signs of a slowdown or a further rebound will likely have implications for market expectations of additional stimulus from the Bank of England later in the year. Manufacturing and Industrial Production figures are out Friday; gains could offer the pound some support.
German Ifo Business Climate started off the week with a jump from 106.3 to 109.5, offering the euro some support. In comments last week, ECB President Draghi reiterated the importance of structural reform and fiscal policy and defended the ECB’s accommodative monetary policy before German lawmakers. Preliminary inflation figures indicated that CPI inflation rose 0.1% in Germany, 0.3% in Spain, and 0.4% in the Eurozone as a whole, in line with expectations. Core CPI held steady at 0.8% compared to forecasts of 0.9%. The ECB’s target rate is 2%. The Eurozone’s Unemployment Rate had been forecast to fall to 10.0% but instead held steady at 10.1%. German Retail Sales fell 0.4%, more than expected. The euro came under pressure on Friday morning on concerns over Deutsche Bank, rallying in the afternoon on speculation that Deutsche Bank’s fine might be reduced.
The euro may remain vulnerable to any additional headlines regarding Deutsche Bank this week. Monday is a Bank Holiday in Germany. Key releases this week include Final Manufacturing and Services PMIs, German Factory Orders, and Eurozone Retail Sales. Markets will also keep an eye on the European Central Bank’s Monetary Policy Meeting Accounts for any additional forward guidance, although the minutes tend to prompt limited market movement as most of the attention is on the ECB’s press conference four weeks prior.
There were a multitude of Fed speakers last week, both voters and non-voters, indicating that the Fed remains divided over when to act. Mester and George, both of whom dissented in favour of raising rates in September, were among those who made hawkish comments. Harker and Lockhart also made relatively hawkish statements, while Powell was more cautious, emphasising that inflation remains low and global growth weak. Fed Chair Yellen testified before the House Financial Services Committee, focusing on banking and regulation. Final Q2 GDP was revised up from 1.1% to 1.4%, higher than the revision to 1.3% that markets expected. Durable Goods Orders came in above expectations, holding flat from month-to-month, while core orders fell 0.4%. Consumer Confidence unexpectedly rose; the index increased from 101.8 to 104.1. Personal Spending was flat while income rose 0.2%, in line with expectations.
This week’s key releases include Manufacturing and Non-Manufacturing PMIs and Friday’s September jobs report. Gains in the PMIs could offer the dollar some support. The ADP Non-Farm Employment Change figure, out Wednesday, will provide an indication of the official figure. Signs that the labour market remains strong would likely support the argument for raising interest rates and support the dollar, while an unexpected dip could instead weigh. Average Hourly Earnings are expected to pick up, while the Unemployment Rate may remain unchanged at 4.9%. Fed speakers include Fischer, Mester, and George.