Dollar under pressure

The dollar ended Friday’s session at or close to its lows of the week against the other main currencies amid another batch of mixed US economic data. The euro is trading at around $1.1040 against the US currency this morning, just shy of last week’s high of almost $1.1050, while sterling is hovering just north of $1.2950 having gained almost a cent on Friday. The pound continues to nudge higher versus the euro, trading at around 85.2p at the start of play today. As regards the week ahead, all the attention will be on Fed Chair Powell’s speech at the Jackson Hole central banking symposium on Friday, which the market will be looking to for a strong signal that the Fed is set to cut interest rates at September’s monetary policy meeting.

In government bond markets, US and German yields edged lower on Friday, partially reversing Thursday’s jump in yields, though UK yields rose further as recent economic data has led to some paring back of Bank of England rate cut expectations. In equity markets, US and European stocks ended in the black on Friday, capping off a positive week which saw the S&P 500 gain almost 4% as it extended its recovery following a short-lived sell-off at the start of August.

Friday saw some more mixed economic data in the US. While consumer confidence rose in July according to the University of Michigan’s index, having fallen in each of the previous four months, the number of new housing starts fell by almost 7% last month and over the three months to July was down 4% on the three months to April.

While individual data releases in August to date have been sending conflicting signals about the state of the US economy, the Atlanta Fed’s latest estimate of the current run-rate for GDP growth in Q3 is 2%. Though this is down from the second quarter outturn of 2.8%, it is still a solid pace of growth and broadly in line with Fed’s estimate of the economy’s potential growth rate over time. (The Atlanta Fed will continue to update its estimate of Q3 growth as more data comes to hand).

There are a few important economic data releases due this week. These include August flash PMIs for the main economies and the ECB’s indicator of negotiated wages in Q2, both on Thursday, and the ECB’s latest survey of consumer inflation expectations on Friday. The Fed and ECB also publish the minutes of their most recent monetary policy meetings, on Wednesday and Thursday respectively, while the Jackson Hole conference which kicks off on Thursday and runs to Saturday.