USD – Q2 GDP update
UK political risk remained very much in evidence during yesterday’s session, with the result that the Pound fell to fresh 11-month lows against the Euro. With UK economic data still thin on the ground and Parliament’s return from the summer break moving ever closer, the scope for fireworks over the Brexit strategy - and potentially Theresa May facing a leadership challenge in the weeks ahead - remains front of mind.
The macroeconomic data scheduled for release today remains focused very much on the US. We have a revision to the Q2 GDP data at 1.30pm BST, which is expected to show a move slightly lower. As we noted yesterday, there is a high degree of confidence that the Federal Reserve will now push ahead with a further two rate hikes this year. This news is priced in, so the bulk of direction for the US Dollar is more likely to be seen off the back of any suggestion that the economy’s rampant growth isn’t sustainable. A downward revision in the GDP print could well act as such a catalyst.
There’s also some concern creeping in over the state of the US real estate market right now, suggesting that today’s Pending Homes Sales readings at 3pm BST will be worth watching. With construction reportedly slowing as the country clamps down on illegal immigration and the economy booming, a shortage of supply has been met with rapidly rising property prices. This is having the effect of pushing some prospective buyers out of the market, whilst increased mortgage repayments are also driving foreclosure rates. It’s very much a second-tier consideration, but if it’s combined with more evidence that the country’s economic boost is set to be unsustainable, then it’s the sort of data that could serve to counter some of the Dollar’s recent gains.
Looking into Thursday morning and German unemployment data will be very much in focus. The country’s economic prowess has been seen as key in driving the Euro’s run of late and expectations are that we will see further strengthening of the labour market here. As such, the risk is arguably weighted on the downside - even if it is only likely to be a short-term consideration. Any expansion in the level on unemployment however could serve as a trigger to at least provide the Pound with some respite from the common currency’s recent ascent.
The pair is coming under renewed selling pressure in early trade, with reports that sovereign banks are set to dump GBP holdings ahead of any no-deal Brexit being the latest threat to weigh.
The Euro has retreated from its test of one-month highs against the US Dollar, which were tested during Tuesday’s session. An absence of fresh Eurozone economic data in the short term could lead to further weakness here.
The Pound traded below 1.10 for the first time since last September during the latter part of Tuesday’s session. It has since retaken what could be seen as this psychologically important level, although with the risk of a no-deal Brexit mounting, downside pressures could well dominate.