GBP/EUR 1.2799 (0.7811)
Risk appetite was mixed through last week’s session, in the US the dollar reigned supreme while equity markets varied between gains and losses. Friday saw US stocks rally following confirmation of the upward revision in Q2 GDP, this helped close the gap following Thursday’s dismal performance. In Europe stocks traded higher through Friday, a stronger risk environment and the expectations of QE helping European stocks close the week in positive territory, while the EUR continued lower against all major counterparts. In overnight trading the NZD was one of the worst performers, Bloomberg reported the Reserve Bank New Zealandsold NZD$521m through August, NZD has traded some 12% lower since June as the RBNZ look to actively weaken the strength of the kiwi, New Zealand PM John Key suggesting that a NZDUSD level of approx .65 would be appropriate.
The stronger US dollar trend has continued in early trading so far this week, the greenback posting gains against EM and Australasian currencies. Friday’s final print of Q2 GDP met with expectations and confirmed GDP grew 4.6% through the quarter, rebounding and covering the loss experienced through Q1. The apparent robust growth figure added to the weight of those calling for the Fed to begin raising interest rates sooner than expected. It is worth pointing out though that we are now just about finished Q3, the Q2 figures are retrospective and recent data suggests the pace of growth has slowed , and that the pace of recovery remains mixed. There are several key data points from the US this week, most notable labour market figures in the form of Non Farm payrolls on Friday. After two consecutive months of weaker prints and declines markets are looking for a rebound which may further boost the USD. Today Pending homes sales top the bill, with expectation of a .1% decline.
Data from the UK was light last week and while the pound did manage to rally against most counterparts it still struggled against the dominant USD. EURGBP dropped close to two year lows trading below .7800 momentarily on Thursday as the BOE and ECB policy look to move in different directions. The final reading of Q2 UK GDP is due for release tomorrow as is expected to confirm annual growth at 3.2%. This will no doubt have focus on the BOE path to rate hikes once again. UK data remains light today with only lending data on tap which is unlikely to cause and major breakouts in GBP pairs.
The EUR continues to struggle dropping close to fresh two year lows against GBP and USD. The single currency traded below .7800 momentarily last Thursday against GBP and a test of 2012 lows at .7755 seems inevitable unless fortunes change considerably for the EUR. Focus this week will be on Inflation readings for the region with CPI prints due this week, first up with be the German print this afternoon with inflation expected to have declined .1% through August, with annual inflation expected to drop to .7% from .8%. A reading in line or worse than expected from Europe’s core may well keep expectations low for the regional print tomorrow, anything on the high side however should provide the EUR with some minor lift. The ECB interest rate meeting highlights the European calendar this week but after last month’s shock rate cuts no further action is expected, and most likely most questions will focus on the potential scale of the QE program the ECB have discussed.