Despite a minor reprieve early yesterday, the U.S. dollar remains weak across the board. A report yesterday showed underwhelming personal income and personal consumption data which paints a more dour outlook for the world’s largest economy. Equity markets cannot be bothered to notice as earnings season has sent U.S. equity indexes to new record highs. Nevertheless, we expect that the Federal Reserve is paying attention. Traders have consistently cut their expectations for an additional interest rate hike this year. Currently, Fed Fund futures show a 41% chance of a hike by the end of the year, down from 55% a month ago and correlates with the dollar’s recent demise.
This morning’s economic docket has failed to provide the catalyst for a dollar recovery. ADP reported that private payrolls rose 178K in the month of July, missing estimates of a 190K gain. However, print from the month prior was upwardly revised. There is no further data slated for release today. Non-Farm payrolls on Friday remains the week’s main risk event.
The Euro was back on the offensive overnight, testing highs last seen in January of 2015. There was no major data released in the Eurozone today. The EUR/USD seems to be trying to establish new, higher ranges after breaking technical and psychological levels. The European Central Bank is said to be considering tightening policy in the coming months. Pair this with diminished odds the Federal Reserve will tighten further in the U.S. and you have a recipe for continued Euro strength.
A few analysts have warned that trading could be increasingly choppy during the month of August as much of Europe closes for its summer holiday.
The British pound has shrugged off soft economic data and remains elevated against the U.S. dollar. U.K. construction PMI slipped to 51.9, well short of 54.0 estimates. A separate report showed that the British Retail Consortium’s Shop Price Index fell 0.4% y/y and shows that inflation prices may be easing. The Bank of England will meet tomorrow but no changes are expected.