The euro clocked an eight-week high against the struggling dollar, reaching its strongest since the day after Britain’s Brexit vote in June. A further erosion in expectations for the Fed to hike rates this year could see the euro take aim at post-Brexit peaks above $1.14. The better part of the euro’s outperformance has come by default from the weaker dollar, as data on Thursday affirmed a weak economic backdrop in Europe with area inflation confirmed at an anaemic 0.2 per cent in July, a mere fraction of the ECB’s close to two per cent bullseye.
Sterling
UK retail sales volumes surged by 1.4 per cent m/m in July, more than reversing June’s 0.9 per cent m/m drop. The strong print saw the rolling quarterly growth rate improve further (1.6 per cent last month to 1.8per cent). Even though the link between retail spend and estimates of overall consumer expenditure can be questionable, yesterday’s data provided some early support to the view that consumer spending is likely to remain relatively robust in the aftermath of the EU referendum, even if the economy were to suffer a sharp growth deceleration overall. The result has been a rise in the annual growth rate of sales to 5.9 per cent, the strongest since September 2015. The positive reading, however, should not dismiss expectations that an easing in growth is in prospect for the UK. To be sure, the bigger drag from the increased economic uncertainty is expected to be visible regarding business investment. The pound strengthened sharply on Thursday after the release trading as high as 1.3156 v US dollar late on Thursday in New York, marking its strongest level in two weeks. Against the euro, sterling rallied 0.0086 per cent to 1.1580.
US dollar
The greenback continues to hover near its lowest level against the euro and CHF, two days after the minutes were released. DXY was down 0.36 per cent on Thursday at 94.37 when Federal funds futures implied traders see a 52 per cent probability rate of a US rate hike this year. Euro/US dollar traded over 1.1360 in Thursday’s session. Against swissy, US dollar traded below 0.9540. The New York Fed president indicated to markets the positive signal from the recent strength of US jobs growth and a long-awaited return to middlewage employment. He stated that the previous two months of jobs growth “helped allay concerns that arose earlier this year that job growth was beginning to stall [and] reinforced views that labour market conditions continue to improve”. Earlier in the week, the close ally of Fed chair Yellen, said rates could possibly rise as soon as September, depending on the economic data and signs of inflation. Markets, however, appear to be less than convinced by these pronouncements (and those of Williams) that the September meeting is still in play.