Dollar extends gains as US trade data beats expectations

Today’s macro highlights:

  • EUR - German CPI (June)
  • USD - Revised Q1 GDP

Dollar extends gains as US trade data beats expectations

The Pound has tumbled against the dollar to levels not seen since last November, with better than expected US durable goods order data, a contracting US trade deficit and cautionary words from Mark Carney each playing a role. On top of this, further Pound weakness is also being seen in early trade, with time reported to be running out for a Brexit deal. Theresa May travels to Brussels today to meet with the other 27 EU leaders, with the intention of briefing them for the last time before tabling a final proposal in October. It’s fair to say, there seem to be few supporters of the Pound right now.

Economic data will pick up a little in the hours ahead, although the agenda remains relatively quiet. German inflation data is set for release at 1pm BST and an upbeat reading here will be instrumental in pushing that idea of the ECB winding down its QE program. However the overhanging spectre of a trade war with the US may be presenting some caution amongst consumers - if inflation risks stalling, then the central bank will have just cause to consider extending its stimulus measures.

After yesterday’s impressive US trade figures, the latest revision to the Q1 GDP reading due at 1.30pm BST will be in focus. The longer term expectation here is that the Q2 readings will truly impress, but any revision higher will once again have the potential to deliver yet more dollar strength. That said, with the dollar index forging its way higher, appetite for further dollar buying mat start to wane at these levels.

We have no significant data releases from the UK today but the Bank of England’s chief economist Andy Haldane is due to speak at 2.30pm BST. In the last MPC meeting, Mr Haldane joined those calling for an interest rate hike, so a repeat of this message could be sufficient to offer short term respite to the Pound in its current beleaguered state. That said, with Theresa May likely to face a hostile reception in Brussels, any upside could well prove to be rather short lived.

GBP/USD
For the second time this month, the pair fell by over a cent during the day’s trade. The run of dollar strength seems to be unrelenting, but that August rate hike from the BoE remains a distinct possibility, talk of which could provide some support - albeit short lived.

EUR/USD
The pair is approaching lows for the month, although a solid German inflation reading today could help provide some temporary support.

GBP/EUR
The pair is eyeing lows for the quarter, with the potential of a damaging no-deal Brexit - plus the domestic political uncertainty that would accompany this - weighing on the pair. A conciliatory tone from Brussels today however may be sufficient to reverse this trend.