US Dollar Slide Persists

Weekly Report - 27/08/2017

Gold Fails to Breakout Despite Haven Demand


The greenback remained on its heels across the board in the last full trading week of August, which saw EURUSD soar to its highest level since January of 2015. The British Pound was the other notable under-performer of the week, with Sterling to remain in focus as “Brexit” negotiations resume on Monday.

Last Week

Last week’s highlight was by far the US Federal Reserve’s annual symposium in Jackson Hole, Wyoming, which has frequently seen the unveiling of major shifts in monetary policy. Investors had speculated that Federal Reserve Chair Janet Yellen would use the stage to provide fresh clues about the direction and pace of “quantitative tightening.” However, Yellen conspicuously stayed away from any policy guidance. Not surprisingly, this sent the US dollar tumbling against most other major currencies. Gold, on the other hand, showed ample intraday volatility, though it ultimately failed to break out of the recently formed congestion zone, suggesting investor hopes for a hawkish Fed were alive.

Sales of new and existing US homes fell short of expectations, highlighting a potential turning point in the housing market.  Across the Atlantic in Germany, both the ZEW and the Ifo surveys showed an easing of economic and business sentiment, while UK GDP was confirmed at its second slowest pace of growth since the beginning of last year, sending EURGBP to its highest point since 2009. In Japan, core inflation rose additionally during the month of July, increasing confidence among policymakers working to return inflation to 2.00%.


The Week Ahead

A slew of key economic data points will continue to steer the financial market narrative in the upcoming week. A revised set of US second quarter GDP figures, the Fed’s favoured Personal Consumption Expenditure inflation gauge, and the widely-followed official US labour-market statistics are all scheduled for release during the week ending September 1st. The US economy grew at an annualized pace of 2.60% in the 2nd quarter according to the advance release, with a small upgrade to 2.70% forecast for Wednesday’s report. After the Core Consumer Price Index remained unchanged at 1.70% year-over-year in July, the PCE Price Index is expected to come in at 1.40%.

The all-important US Nonfarm Payrolls figures will be available on Friday, with the current consensus pointing to a gain of 180,000 new jobs and the unemployment rate projected to remain flat at 4.30%. In Europe, the preliminary Euro Area CPI data will be available on Thursday, with the index predicted to rise to 1.40% in August on an annualized basis alongside an unchanged core figure. Apart from Europe and the US, China is set to report the Caixin Manufacturing PMI, which tracks nationwide factory activity, with estimates anticipating a modest slip to 51.0 from the 51.1 recorded back in July.


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