Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“German consumers apparently assume that the hard-won solution in the debt dispute with Greece will have negative consequences on the German economy”

- Rolf Buerkl, GfK analyst

Even though German consumers remained optimistic, they voiced concerns about the country’s economic situation due to uncertainty about Greece’s financial stability. According to the GfK research group, the forward-looking consumer confidence index remained flat at 10.1 points for August from July. However, the poll of 2,000 consumers revealed a significant decline in economic expectations, which decreased by 6.5 points this month and have lost almost 20 points in two months. Moreover, the GfK survey showed Germans felt more upbeat about their future income than at any point since Germany reunified in 1990, in light of high employment and strong pay hikes. Shoppers, nonetheless, were reluctant to make purchases, which GfK assumed could be due to waning optimism about the overall economic outlook.

At the same time, Spanish retailers saw an accelerated turnover, with sales rising at a faster pace, the National Statistics Institute reported. Retail businesses posted an annual 3.8% growth in June, compared with the 1.8% increase in the prior month. Meanwhile, the adjusted figure climbed 2.3% in annual terms, following the 3.1% growth reported in May. Spanish shoppers may be willing to dig into their wallets in line with the gradually improving labour market. Unemployment numbers are gradually declining in Spain, although the country still has the second highest jobless rate in the euro area - behind Greece.

USD

“In my mind, the Fed is very comfortable with a slow, deliberate pace”

- Brian Bethune, an economics professor at Tufts University

The Fed remains on track to hike interest rates later this year, with odds rising that the decision will come as soon as its next monetary policy meeting in September, as the US economy continues to perform in line with expectations. The decision to keep rates near at all-time low for at least a few more weeks was unanimous, supported by all ten voting members of the FOMC. Nevertheless, a number of those policy makers have said in recent months that they do not think the Fed should wait much longer.

Following FOMC two-day meeting, Fed officials said the world’s number one economy managed to overcome a first-quarter slowdown and was growing moderately despite a weakness in the energy sector and headwinds from abroad. Thus, the central bank upgraded its view of the economy and the labour market, but remained uncertain about the course of inflation, which has been weaker than the Fed would like. Describing the job market, the Fed for the first time pointed to "solid" job gains and declining unemployment. The unemployment rate has slid to a seven-year low of 5.3%. The Fed said it only needed to see “some” improvement in the labour market. Besides the additional amelioration on the labour front, the central bank said it also needed to be more confident that low inflation will rise to the 2% medium-term target. The Fed’s policy committee next meets Sept. 16 and 17.

GBP

“A revival in productivity will help the recovery to achieve an above-trend pace over the coming quarters. What’s more, this revival should help to keep inflation subdued”

- Samuel Tombs, analyst at Capital Economics

Growth of British annual sales weakened in July, despite a big surge in clothing purchases, the Confederation of British Industry reported. The CBI distributive trades survey's retail sales balance dropped for a second straight month after sliding to the lowest level in five months in May, declining to +21 in July, compared with +29 in the prior month, falling short of economists' forecasts for a modest rise to +30. The outlook for sales in August was even gloomier, with the corresponding gauge declining to a two-year low of +13 from +33. According to the latest official data, retail sales, both including and excluding fuel, decreased 0.2% between May and June. Despite the continuous quarterly growth, total retail sales volumes slowed during the April-June period to 0.7%, down from 0.9% in the first three months of the year. The retail sector and overall domestic consumption in the UK has been considered one of the key drivers for the economy. Expectations for domestic spending in the country have been mixed recently, with some analysts warning it could weaken even further once the Bank of England starts to hike its benchmark interest rate from the record low of 0.5%, given the burden of household debt and rising house prices. A separate report showed net lending to individuals and households rose more than expected in June, reflecting increased demand for credit. The BoE said total net lending to individuals increased by 3.8 billion pounds last month, up from 3.5 billion pounds in April.

AUD

“But if such flows did happen, it’s going to be very important that the depth and the quality of financial markets in China and around the rest of Asia that might be receiving flows continues to develop”

- Glenn Stevens, RBA Governor

Australia’s building approvals posted the biggest monthly decline since September 2014, dragged down by a steep decrease in the volatile apartment sector. The Australian Bureau of Statistics reported the number of buildings approved plunged a seasonally adjusted 8.2% to 17,868 in June, much worse than the 0.8% expected by economists. The volatile apartment sector plummeted 20.4% in the reported month, whereas the more stable detached house sector saw a 4.3% increase in approvals to 9,661. Nevertheless, over the 12 months to June, building approvals surged 8.6%. Over the same period apartment approvals have surged 16.3%, while approvals for private sector houses rose a modest 3.3%. In trend terms, which strip out monthly volatility in the figures, housing approvals have soared 14.4% over the year to June. However, the trend rate of dwelling approvals has now fallen for four consecutive months, at a time when the Reserve Bank of Australia is trying to support the economy with ultra-low interest rates.

Meanwhile, Reserve Bank of Australia Glenn Stevens said China’s portfolio flows could reach $400 billion a year after freeing up its financial markets. The Governor urged Asia to develop its financial markets to absorb the potential inflow.