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Greenback recovers composure after strong economic data

Currency-Market-Update-Monday-1
Albert Edwards
by Albert Edwards on August 19, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD stronger after better than expected Retail Sales and building permits last month eased market concerns about economic growth. Housing Starts for July dropped 4.0%/1.191 million. After fears of a recession and protests in Hong Kong, financial markets were on edge last week. The inversion of the Treasury yield curve has historically preceded several past recessions and this has also increased fears about the impact of the trade war. All eyes will be on the latest Federal Open Market Committee meeting minutes available Wednesday. Markets will be focused on the next rate cut and if this is the beginning of a cycle.

Canadian dollar highlights:

CAD strength continues to fluctuate with crude oil prices. Since Canada exports many commodities, CAD also vulnerable due to a slower economic growth outlook. Crude oil prices dropped last week after weak economic data from China and Europe and an increase in U.S. crude inventories. China’s industrial growth output dropped to a 17-year low and weaker than expected economic data for July. Markets will be focused this week on Consumer Prices data for July (available Wednesday) and Retail Sales for June (available Friday).

Euro highlights:

EUR declined as global recession fears increased after Germany’s economy shrunk in Q2. Germany’s GDP fell 0.1% quarterly after growing 0.4% in Q1 (as a result of lower exports due to the trade war). EUR is under pressure as expectations of central bank stimulus are increasing. European Central Bank Governing Council member Olli Rehn suggested last week that the central bank could restart its quantitative easing program and was open to extending it into equity purchases. Markets will focus on the Inflation Rate for July available today.

British pound highlights:

GBP stable after Retail Sales expanded in July, strong wage data and modest inflation. Consumer Prices increased 2.1% yearly and the Bank of England’s inflation target is 2%. Despite Brexit uncertainties and political turmoil, the economy is performing well. GBP is still defensive and near a 2.5 year low due to increased concerns of a no-deal Brexit. Meanwhile, Labour leader Jeremy Corbyn is gaining more support for a no confidence vote against Boris Johnson.

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