Good US economic results not enough to strengthen US Dollar

What to watch out for this week…

• Good US economic results not enough to strengthen US Dollar
• Antipodean economies react…

What to look out for…

The commodity currencies – Australian Dollar, New Zealand and Canadian Dollars – are benefitting from the US Dollar’s fall from grace, as markets and risk-averse investors turn to the “safe haven” alternatives to the usually sought after USD.

Good US economic results not enough to strengthen US Dollar

Some economic data was released today for the US; notably Durable Goods Orders rose an impressive 6.55 percent in the month to June. The figures were skewed by the impressive summer success of Boeing but the Jobless Claims numbers showed a rise of 10,000 on the week and that is a concern ahead of next Friday’s July employment report. The all-important Non-Farm Payroll change released on 4th August covers construction, manufacturing and goods data, so it should give a fuller picture of US employment and is a strong economic indicator.

The EUR-USD should be able to continue its recent upward momentum for some time unless there are any significant economic developments in the meantime. This is unlikely during the summer break, but you never know with currency markets. The first estimate of US Gross Domestic Product (GDP) growth for the second quarter of the year is released on Friday 28th July and the forecasters are predicting accelerated growth of 2.5% for Q2. That could well be the catalyst that starts the US Dollar recovery…or not of course.

Antipodean economies react…

Australia will likely have mixed feelings about the currency boost from the US, as their central bank has expressed concerns about the effects of weak wage growth on the overall economy, although they are hoping for a weaker Australian Dollar, which would help increase inflation. While their inflation rate fell somewhat last month, it is very close to the target rate set by the Reserve Bank of Australia, so that’s good news, although the spiralling housing market still needs to calm down.

The New Zealand trade deficit got a little smaller last month, although it’s not enough for New Zealand policymakers. A strong New Zealand Dollar helps importers, but hinders exporters, so this is having a noticeable effect on the latest trade figures. With a boost for the New Zealand currency from US Dollar weakness, this is one to watch.

What you may have missed…

US Dollar drops dramatically

The Federal Reserve announced that they plan to keep everything as is; that is, keeping the current rates and overall monetary policy the same. Another rate hike is not looking likely until much later in the year. This less confident stance of the US policymakers caused the US Dollar to fall to its lowest level in over a year this week. That is true of the Sterling – USD and Euro – USD rate as well as many others.

Mixed news for UK economy 

Retail sales growth has increased throughout the year to July, according to the latest Confederation of British Industry (CBI) Distributive Trades Survey, which showed a healthy pace of sales growth for retailers in the UK. A warm summer has helped push this along, and while retailers expect similar results next month, other economic factors, such as slower wage growth and rising inflation, could start to have a cooling effect on consumer spending. Meanwhile, slower growth was reflected in the UK’s latest Gross Domestic Product (GDP) data. The annual growth rate of 1.7% was in line with expectations and many analysts believe economic growth is set to continue at a more sluggish pace over the coming years as the Brexit negotiations pan out.

Euro remains strong

The widely respected German IFO Business Confidence Index posted its strongest ever results this week, coming in at its second consecutive record results and strengthening the Euro against its major currency pairings, particularly the Pound and US Dollar. These confident results came in just days after comments from the European Central Bank (ECB) about tapering their quantitative easing programme helped give the Euro a boost to begin the week. At the same time, the International Monetary Fund (IMF) revised the growth forecasts up for Spain France, Germany and Italy, adding further support to the Euro.

Face-books

I had to chuckle at a recent Tweet I noticed from Mark Bridge of The Times, who unearthed this 1902 gem from the British Newspaper Archive:

‘“Face-books.”

A “Face-book” is the latest novelty for whiling away the time in a country house. Everyone who comes to stay has to draw a face in the album, however badly, and sign his name underneath. The result is very amusing, and the worst drawings always cause the most entertainment.”’

It certainly is “amusing”. Is the modern-day Facebook missing a trick? Laughing at other people’s useless drawing skills sounds like a great way to while away the hours, although I’d certainly be opening myself up to repeated humiliation.