Market Review - 17/08/2019 05:49GMT
Dollars ends largely flat after soft U.S. data, euro recovers on possible German stimulus package
The greenback ended largely flat after initial gain in European morning as release of soft U.S. economic data prompted profit taking. Euro briefly rebounded on short covering following media report of a possible German stimulus package.
On the data front, Reuters reported U.S. homebuilding fell for a third straight month in July amid a steep decline in the construction of multi-family housing units, but a jump in permits to a seven-month high offered hope for the struggling housing market.
Housing starts dropped 4.0% to a seasonally adjusted annual rate of 1.191 million units last month, the Commerce Department said on Friday. Reuters also reported dollar weakened after the University of Michigan consumer sentiment index fell to 92.1 early this month, the lowest reading since January, from 98.4 in July. The survey's current conditions measure dropped to its lowest level since late 2016.
The consumer sentiment data came after the Treasury yield curve inverted this week, which historically has preceded U.S. recessions. The inversion stoked worries about the impact of the Sino-U.S. trade war.
Versus the Japanese yen, the greenback traded with a firm bias and gained to 106.26 in Asian morning, then rose to session highs of 106.49 in European morning on rising U.S. Treasury yields before retreating in New York morning due to soft U.S. data, price later fell to 106.21 after weak U.S. confidence.
The single currency remained on the back foot in Asia after Thursday's selloff following dovish comments from ECB's Rehn. Price met renewed selling at European open at 1.1106 and later hit a 2-week low of 1.1067 in early New York trading due partly to cross-selling in euro especially vs sterling. However, price quickly erased intra-day losses and staged a strong rebound to 1.1106 in New York morning on media report that Germany is ready to ditch balanced budget.
Reuters reported Germany's right-left coalition government would be prepared to ditch its balanced budget rule and take on new debt to counter a possible recession, Der Spiegel magazine reported on Friday. Fears are mounting that Europe's largest economy could slide into a recession after slumping exports due to a global slowdown, tariff conflicts and Brexit fears translated into a contraction of 0.1% in the second quarter.
Germany has had a balanced budget since 2014, a fiscal rule introduced by former conservative finance minister Wolfgang Schaeuble and stuck to by his Social Democrat successor Olaf Scholz.
Although the British pound initially dropped to session lows at 1.2077 in Australia, price erased its losses and later rallied in Europe on positive Brexit news together with cross-buying in sterling especially vs euro and hit intra-day high at 1.2175 shortly after New York open. However, intra-day rebound in eur/usd triggered short covering in eur/gbp cross and pushed price back to 1.2138, cable last traded at 1.2146 near the close.
Reuters reported the leader of the anti-Brexit Liberal Democrats party said on Friday two senior lawmakers from the ruling party and opposition have indicated willingness to lead an emergency government to prevent a no-deal divorce with the European Union. Given Prime Minister Boris Johnson wants to take Britain out of the EU on Oct. 31, with or without a negotiated transition, foes are plotting how to bring him down and stop a no-deal Brexit they say would be disastrous for the economy.
Liberal Democrat leader Jo Swinson told BBC radio on Friday that former Labour deputy leader Harriet Harman and ruling Conservative party veteran Ken Clarke had both told her they would be prepared to assume that role. "They put public duty first and they don't want to see a no-deal Brexit," Swinson said.
"If the House of Commons asks them to lead an emergency government to get our country out of this Brexit mess and to stop us driving off that cliff to a no deal, then yes they are prepared to do that."
In other news, Reuters reported a meeting between Chancellor Angela Merkel and British Prime Minister Boris Johnson is planned soon, a spokesman for the German government said on Friday, adding that details would be announced later. Steffen Seibert told a news conference the German government still favoured an orderly Brexit, adding that a no-deal withdrawal was in no one's interests.
Asked if every day that passed without negotiations increased the risk of a no-deal Brexit, Seibert said: "It won't get easier."
Data to be released this week :
New Zealand PPI, UK Rightmove house price, Japan exports, imports, trade balance and EU current account, HICP final, core HICP on Monday.
Germany PPI, Swiss trade balance, exports, imports, EU construction output, UK CBI trend order, Canada manufacturing sales and U.S. redbook on Tuesday.
Australia Westpac leading index, UK PSNB, PSNCR, U.S. MBA mortgage applications, existing home sales, and Canada CPI, CPI BOC core, CPI, core CPI on Wednesday.
Australia manufacturing PMI, services PMI, Germany GDP, Markit manufacturing PMI, Markit services PMI, Swiss industrial production, France Markit manufacturing PMI, Markit services PMI, business climate, EU Markit manufacturing PMI, Markit services PMI, consumer confidence, UK CBI distributive trades, and U.S. initial claims, Markit manufacturing PMI, Markit services PMI, leading index, KC Fed manufacturing on Thursday.
New Zealand retail sales, retail sales ex-autos, Japan national CPI, UK BBA mortgage approvals, U.S. build permits, new home sales and Canada retail sales, retail sales ex-autos on Friday.
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