The volatility surrounding the U.S Dollar continued yesterday as a report from the Federal Reserve showed that U.S economic growth was slowing in the second half of the year while inflationary pressures are at modest level. Therefore, the possibility of a further tightening of U.S interest rates next month looks increasingly unlikely and that sentiment is weighing heavily on the Dollar as we trade uptowards 1.8700 against the Pound. However, there was some positive economic data released in the States yesterday afternoon as orders for U.S made durable goods rose by more than forecast in June, which provides an indication that manufacturing is likely to remain at an elevated level while the housing market continues to show signs of cooling. Following the Fed’s aggressive stance towards monetary tightening, the housing market has continued to decline and that was emphasised in the data released yesterday as the sales of new homes fell by 3.0% in June, which leaves a record number of unsold homes floating on the market and may prompt builders to shed prices.
There is some hugely significant inflation data released this afternoon in the States, which has the potential to influence the Fed’s decision on rates next month. The rate of economic growth is widely expected to decelerate to 3.0% in the second quarter from 5.6% previously and therefore justifies the Fed’s intention to hold interest rates at 5.25%. However, while a slowdown in growth is anticipated the GDP deflator and Employment Cost Index will be watched closely for direction on U.S inflation and both are expected to accelerate in the second quarter.
The Euro has looked relatively strong in recent sessions but we closed above 1.4600 against the Pound last night following a sparse supply of economic data released. However, growth in the M3 money supply into the Euro-zone is widely expected to remain at an elevated level in June, which may prompt the ECB to continue raising interest rates. Elsewhere, French unemployment is expected to remain unchanged at 9.1% in June while consumer confidence is widely anticipated to show a marginal decrease. The ECB interest rate announcement is less than a week away and forecasters are anticipating that the Central Bank will hike rates by a further quarter-point for the fourth time this year and take their benchmark interest rate upto 3%.
Data Released 27th July
EU 09:00 M3 Money Supply (June)
– 3 month moving average
U.S 13:30 Advance GDP (Q2)
– GDP Deflator
U.S 13:30 Employment Cost Index (Q2)
U.S 14:45 Michigan Sentiment Survey (July – final)
written by Adam Solomon
Related posts:
- The Dollar’s seven day winning streak is shattered as the threat of higher interest rates may hamper economic growth
- The Dollar weakens on speculation that the Fed will tighten monetary policy, fuelling concerns that economic growth slowed into the second quarter
- The Dollar may weaken further as the U.S Housing Market continues to decline following higher interest rates
- The Pound continues to make gains as growth in the UK economy accelerates to the fastest pace in two years
- The Pound weakens against the Dollar as UK Producer Prices decline in June while the Housing market continues to show signs of growth
