Dollar Down Yet Again

GBP

Last week the pound made gains against both the euro and dollar, of 1.1% and 2% respectively. This largely due to a background of data releases for the July-August period showing that the UK economic recovery is accelerating, in addition Bank of England Governor Andrew Baily stated that there is ample firepower left to support the UK economy and that the use of negative rates are unlikely to be implemented in the near future.

Sterling is likely to continue its gains against the dollar this week and has already made fresh highs this morning. On the data front, a quiet week in store for the pound with only August manufacturing and services PMIs being released on Tuesday and Thursday respectively. With Brexit negotiations not planned to resume until 14th September, the market is not expecting much from pound apart from taking advantage of the continued dollar weakness.

USD

The dollar weakened sharply across the board last week due to the market’s perception of Fed chair Jerome Powell’s speech at the Jackson Hole economics symposium. Powell’s announcement of adopting average inflation targeting, as well as tolerance for an inflation overshot above the standard 2% target indicated two things to the markets. Firstly, there is no chance of an interest rate increase in the near future. Secondly, there is a possibility that the Fed would look to lower rates yet again. These two factors led to a selloff in the dollar and this will cause a drag on the green back for months to come.

With such a bearish tone, the dollars only hope for some rest bite comes with three major data releases on Tuesday, Thursday and Friday. On Tuesday and Thursday, the ISM PMI for manufacturing and services are released, respectively. Manufacturing is expected to increase and services to decline from their previous figures. Friday will bring the US Jobs report and most importantly Nonfarm payrolls, this is the number of non-agricultural jobs created in the month prior. Markets will be watching for confirmation of Powell’s comments made the week before.

EUR

The euro finished the week up 1% against the dollar but down 1.1% against Sterling. With most data releases being on or around consensus, the euro was much more reactive in its move against other currencies, rather than driving any volatility itself. With continued increases in COVID numbers in mainland Europe, investors are reluctant to back the common currency at this time and are instead waiting to see if a second spike can be contained.

On the data front, we will see CPI figures released on Tuesday. Both core and headline are expected lower at 0.9% and 0.2% respectively. Thursday will see retail sales up at 3.5% against a previous reading of 1.3% but this is said to be artificially inflated due to normal discount sales being pushed back to August. Overall, the euro is expected is to have a quiet week and be reactive yet again.