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No surprises from the ECB leaves the dollar as yesterday’s winner

Today’s macro highlights:

  • EUR – French Consumer Spending (June)
  • USD – Q2 GDP
  • USD - Michigan Consumer Sentiment (July)

No surprises from the ECB leaves the dollar as yesterday’s winner

The focal point on yesterday’s economic calendar was the ECB’s monetary policy statement. However with Mario Draghi’s plan still being for interest rates not to move before the latter part of 2019, the common currency was left on the back foot during the session with some modest selling pressure being seen as a result. Critically, the ECB’s outlook is based on the fact there will be no deterioration in global trading conditions, so if this starts looking like misplaced optimism then the inference is the accommodative monetary policy will have to be sustained, leaving the Euro looking somewhat precarious.

French Consumer Spending data for June is scheduled for release at 8.45am BST and although this is a low level reading, on the basis data - at least from this side of the Atlantic -is rather thin on the ground today, the number may have the ability to provide some broader direction. We’ve already seen French GDP fall short of expectations this morning, coming in at 0.2% for the quarter versus the forecast 0.3%, so a continuation of that theme could start to drag on the common currency.

As noted yesterday, US Q2 GDP readings are set for release at 1.30pm BST and the Trump administration has been eagerly telegraphing the number already. The annualised figure is expected to be somewhere above 4% - messages from the White House suggest 4.8% - but the question has to be whether this is sustainable. A complex picture of inflation, tax breaks and government subsidies are fuelling the US economy right now, so a soaring GDP print wouldn’t sit well alongside yesterday’s dip in durable goods orders. The fact this could prove to be rather short lived - plus the expectation having been communicated so widely to the market - could well leave any dollar gains looking rather limited.

Two further data points will round the week out, with the US Personal Consumption figure for Q2 being published at 1.30pm BST. This reading is expected to show an uptick from 0.9% to 3.1% - something which will have a direct impact on inflation expectations. Rising import costs as a result of those tariffs which are creeping in is affecting the situation here, but as noted over GDP, the risk is any spike could prove to be very short lived. At 3pm BST we have the Michigan Consumer Sentiment reading due for release and the forward looking qualities of this print will be telling. Expectations are for no change from last month, but any weakness here - coinciding with a significant jump in GDP - could raise concerns over the longer term outlook for the US economy.

The pair struggled yesterday, with read-across from the Euro’s weakness in the wake of the ECB policy statement dragging. Even the growing prospect of a Bank of England rate hike next week doesn’t seem to be lending much support to the Pound, with Brexit confusion still dominating the agenda.

Despite the ECB coming out with no surprises yesterday, EUR/USD posted one of its worst one day declines since the June policy meeting with the pair losing almost a cent. This really does suggest the market was disappointed in what it heard and the pair is now close to lows for the month.

Gains for the Pound off the back of the ECB statement were both limited in scale and short-lived in duration. We have seen a recovery from the lows at the end of last week, but it’s the political agenda rather than monetary policy that continues to loom large here.