Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“However, with the PMI Output Index slipping slightly to 52.8, the region remains on course to register growth of only around 0.3%-0.4% in the third quarter, a level that is unlikely to stimulate any real turnaround in the labour market.”

- Rob Dobson, senior economist at Markit

Private business growth in the Euro zone slowed more than expected in August, as manufacturing and service sectors activity declined, fuelling even more concerns over the region’s growth outlook. The Composite Flash PMI, which is based on surveys if thousands companies across the Euro bloc, dropped to 52.8 from July’s reading of 53.8, coming in against expectations for a 53.4 figure. Nevertheless, the indicator has been above the 50-point threshold, which separates contraction from expansion, for the 14th consecutive month. Still, the euro zone has also yet to feel the full effect of escalating tensions with Russia.

Meanwhile, manufacturing activity in Europe’s top economies contracted, suggesting they are struggling like smaller members of the Euro community. German manufacturing PMI dipped to a seasonally adjusted 52.0 in August from a final reading of 52.4 a month earlier. Meanwhile, the preliminary services PMI inched down to a seasonally adjusted 56.4 from July's 37-month high of 56.7. Elsewhere, manufacturing activity in France contracted at the fastest pace in more than a year in August, with the corresponding gauge falling to a seasonally adjusted 46.5 in August from 47.8 the previous month. The preliminary services purchasing PMI, however, improved to the highest level in five months of 51.1 from 50.4 in July and better than expectations for a reading of 50.0.

USD

“The downward trend continues, and is consistent with strong payroll numbers”

- Ian Shepherdson at Pantheon Macro

The number of Americans seeking for unemployment benefits declined more than anticipated last week, adding to further evidence that the labour market conditions are improving. Initial claims for jobless benefits dropped 14,000 to a seasonally adjusted 298,000 for the week ended August 16, according to the Labor Department. Claims for the previous week were revised upwards by 1,000 more applications than previously reported. The four-week average of claims, considered a better measure of labour market conditions as it excludes week-to-week volatility, soared 4,750 to 300,750. However, at that level, it still remains consistent with solid job growth and claims are back at their pre-recession levels. The report also revealed that the number of people continuing to seek unemployment benefits declined by 49,000 to a seasonally adjusted 2.5 million for the week ended August 9. Hiring by U.S. companies has also increased in recent months. July marked the first time since 1997 that employers have added 200,000 or more jobs for six straight months. The U.S. unemployment rate has declined rapidly over the last year, though at 6.2% it remains at a historically high level for this point in the recovery. Broader labour-market indicators show many people, who seek full-time employment, are stuck in part-time jobs and that others have given up their job searches. Still, the improving labour market conditions are fuelling discussion inside the Fed over whether the central bank might have to hike interest rates sooner than most officials had planned.

GBP

“England's early exit from the World Cup also deprived the grocery sector of a much needed fillip"

- Keith Richardson, managing director of the retail sector at Lloyds Bank

Retail sales in the U.K. rose less than projected in July, increasing at the slowest pace since November last year, adding to signs that Britain’s consumer-driven recovery might be starting to slow. On a monthly basis retail sales volumes increased 0.1% compared to the upwardly revised 0.2% in June, whereas analysts had been calling for a 0.4% jump. On a yearly basis, the gauge gained 2.6% compared to the figure registered in July 2013, the Office for National Statistics said. According to the ONS, the biggest downward pressure on retail sales came from non-store retailing and petrol stations, and some analysts believed the retail data looked healthier once fuel sales and monthly volatility were excluded. Britain's consumers have been the main driver of the U.K.’s economic recovery, which began last year, helped partly by low inflation that has eased the pressure on their spending power. The data are likely to further ease concerns that the central bank will be in a rush to increase interest rates after inflation data earlier this week showed price pressures in the economy were subdued. The minutes of the last BOE Monetary Policy Committee showed two of its nine members voted for increase in interest rates, but were outvoted by the other members, who wanted rates to remain at on hold for a while.

The ONS also said today that public sector finances, excluding financial sector interventions, showed a deficit of 239 million pounds compared with a deficit of 1.047 billion pounds last year.

CNY

“We think more policy support is needed to help consolidate the recovery. Both monetary and fiscal policy should remain accommodative until there is a more sustained rebound in economic activity.”

- Qu Hongbin, HSBC's chief economist

Growth in China’s manufacturing sector weakened in August, suggesting the recovery in the world’s second biggest economy is losing steam and Beijing may need to take more steps to stabilize the economy. The HSBC-Markit Economics flash PMI gauge slid to 50.3 in August from last month's final reading of 51.7, when the index was at the highest level in 18 months. Following the release of data stocks in China declined, the Australian Dollar weakened and the Yuan dropped the most since June. The Yuan extended its loses to 6.1513 per U.S. Dollar, the biggest fall since June 16.

China's economy has been struggling to stabilize after slowing from double-digit rates of expansion in the past decade. Growth edged higher to 7.5% in the April-June quarter from 7.4% in the first three month period. The HSBC report adds to other recent data that the recovery of the world’s number two economy is still fragile. Earlier this month, data showed that China's exports accelerated but imports declined, which may reflect weakening domestic demand. Economists project China’s gross domestic product will increase 7.4%, marking the weakest expansion since 1990. Faltering growth in China could have knock-on effects throughout the global economy, as businesses depend on continuing Chinese growth to bolster demand worldwide.

CHF

"Companies are also considerably less optimistic about their business expectations in the coming 12 months than they were at the beginning of the year,"

- Swissmem, a lobby group for the electrical and mechanical engineering industry

While European neighbours are suffering from Russia’s embargo of food imports, Switzerland sees its volume of exported products to Russia increasing, as it has refrained from imposing full sanctions in line the EU. Moreover, increasing demand from Europe and Asia for Switzerland's pharmaceuticals and chemicals as well as precision instruments and watches supported export growth in July. Exports rose 4.5% on an annual basis to 19.26 billion francs. Exports to Europe soared 8%, including a 13.9% increase to Germany, Switzerland's biggest trading partner, the office said. In July, exports of watches rose a nominal 2.2% in July to 2.1 billion francs. Sales to mainland China jumped 49%, the best performance in 30 months, the Federation of the Swiss Watch Industry reported. Imports to Switzerland fell 4.6% in real terms and 3.5% in nominal terms. Thus, the trade surplus widened to 3.98 billion francs in July from a revised 1.41 billion a month earlier. The positive data supported the Swiss Franc against the Dollar, with USD/CHF hitting 0.9119, the European session low.

Europe is Switzerland’s main trading partner, as it absorbs almost 60% of Swiss exports. A strong Swiss Franc has made Swiss goods less competitive abroad; however, that effect has been offset by a cap on the value of the Franc that the Swiss National Bank imposed almost three years ago.