Dollar loss as US economy loses momentum
The Greenback has continued to see losses against its major peers after Friday’s disappointing economic data. The fallback of the Dollar came after Q2 GDP’s first reading registered at a paltry 1.2%. This was considerably below the expected 2.6% figure and saw Q1 revised down to 0.8% from 1.1%, demonstrating that so far in 2016, the US economy’s average rate of growth is at 1%. The FOMC’s hawkish tone from Wednesday’s Fed meeting now puts a rate increase further off the table. Economists are now warning of a possible recession by the end of the year due to this slowdown as they head into the election.
The Eurozone posted their first reading of Q2 GDP which showed a slowdown in economic activity as forecast. The reading registered at 0.3%, dropping from the first quarter’s 0.6%. Also the y/y inflation figure showed no real improvement as it registered at 0.2%. This was below the Central Bank’s 2% target, and still dangerously close to dropping back into deflationary territory.
Today, on the first day of the month, we see the release of Manufacturing PMI’s from the UK, Eurozone and the US. UK Manufacturing has fallen into contraction as uncertainty has gripped the UK after the Brexit vote. This gauge is expected to remain at the previous 49.1 reading, but recent data could easily see this fall further into contraction. The US and Eurozone Manufacturing PMI’s are both expected to remain in line with previous readings, at 53.1 and 519.9 respectively.
Further UK data comes under scrutiny as the construction PMI is released in the morning. The gauge is forecast to drop into contraction at 44.2 falling from the 46.0 figure seen last month. Before the UK markets open, the Reserve Bank of Australia will be releasing their latest statement and cash rate, with the RBA expected to cut their interest rates from 1.75% down to 1.5%. If this happens we could see the Aussie Dollar weaken.
- AUD Cash Rate
- AUD RBA Rate Statement
- UK Construction PMI
There will be a host of PMI data releases again from the UK, US and Eurozone. The Service sector figures are expected to remain constant in the US and the single currency zone. The main focus of the markets will be the UK as it accounts for around 80% of the GDP figure. The figure is due to remain at the 47.4 mark as previously seen and in contraction territory. If a further drop is seen the BoE could be more likely to intervene and implement some further stimulus into the UK economy.
- Euro Services PMI
- UK Services PMI
- US Services PMI
- US ADP Non-Farm Employment Change
The biggest event risk of the week will be the Bank of England meeting, which is held to decide on the interest rate and QE programme. The markets are already anticipating for the Central Bank to cut rates from 0.5% to 0.25%, after the vote out of the EU has seen business and economic data drop significantly. If the rate is not cut as expected, the markets will focus on Mark Carney’s statement and look to see if the BoE will implement any sort of QE to support the now uncertain economy. There is no doubt that this will see volatility for the Pound on the release of the rate and the following statement.
- UK Rate Decision
- UK Bank Vote
- BoE Gov Carney Speaks
US labour data comes into focus on the last working day of the week. As this is the first Friday of the month, we will see the release of the NFP figure along with the unemployment rate. As the Fed have pointed to employment as an indicator in determining how the US economy is performing, this jobs number will come under scrutiny. Markets are expecting 180k jobs to be added, a reading either side of this could see the Greenback gain or lose ground. Unemployment is also set to improve and drop to 4.8% from 4.98%.
- US Unemployment Rate
- US Non-Farm Employment Change
- US Average Earnings m/m