Following on from last week, The Dollar came under increased pressure on Friday following the release of the advanced GDP report for the second quarter and as widely expected, economic growth has slowed significantly in the States from 5.6% in the first quarter to just 2.5% in the second and it now looks evermore likely that the Federal Reserve will hold interest rates at 5.25% at the next FOMC rate announcement on the 8th August. As a result, the Dollar declined against the majors, closing back above 1.8600 versus the Pound and with a host of significant economic data released this week, we can anticipate further market volatility in the build up to the Fed’s announcement. The focus this week in terms of U.S data with be the Nonfarm Payrolls report on Friday where it is anticipated that the economy added 150,000 new jobs in July while the unemployment rate is predicted to stay unchanged at 4.6%. There is some significant data released this afternoon in the States with the Chicago PMI widely expected to remain at an elevated level in the figures for July with manufacturing and production showing a modest decline towards 56.0 from 56.6 in June.
Without doubt, the focus this week will be on the ECB interest rate announcement on Thursday where it is widely anticipated that the policy makers will lift interest rates to 3.0% in August as the Euro-zone economy continues to show robust signs of growth. In addition, the accompanying press conference should provide an indication of the ECB’s intention to continue monetary tightening in the in the third and fourth quarters with many investor’s pricing in two further rate hikes before the turn of the year as energy prices continue to soar and inflation remains outside of the Central Bank’s comfort zone. Therefore, the economic data released today will take on added significance as the initial estimate for July inflation is widely expected to remain high at 2.4%, showing just a modest drop from the previous month, which may prompt the ECB to continue raising interest rates. In addition, the Euro-zone sentiment index for consumer and industrial confidence is also released today and forecasters are anticipating a strong figure and sentiment continues to remain high following the staging of the World Cup in the region this Summer.
The Pound has shrugged off some mixed data in the UK over the past week and the Bank of England’s interest rate announcement on Thursday is a close call with many investor’s anticipating a possible rise in UK interest rates in August for the first time in 12 months as faster economic growth and higher inflation may prompt the BoE to tighten rates quicker than previously expected. There is a plethora of significant data released in the UK this week to accompany the rate announcement, most notably the CIPS Manufacturing and Services surveys, while elsewhere UK consumer confidence is widely expected to remain unchanged in July. In addition, Consumer Credit for June is also released this morning and forecasters are anticipating that Net mortgage lending has risen while mortgage approvals have also increased from 117,000 in May.
Data Released 31st July
UK 10:30 Consumer Confidence (July)
UK 09:30 Consumer Credit (June)
– Net Mortgage Lending
– Mortgage Approvals
EU 10:00 Sentiment Index (July)
– Industrial Confidence
– Consumer Confidence
U.S 15:00 Chicago PMI (July)
written by Adam Solomon
- The ECB only lift rates by 25 basis points while UK interest rates remain unchanged at 4.50%
- Trichet’s comments on Thursday continued to pressure the Euro…
- The Euro makes significant gains against the majors ahead of the ECB rate decision and press on conference this Thursday
- The Dollar rallys against the majors as U.S consumer confidence unexpectedly rose in July despite higher petrol prices and rising interest rates
- The ECB keep interest rates on hold at 2.75% but Trichet maintains that the central bank will remain “vigilant” on inflation