Global overview
While the U.S. dollar steadied as it consolidated recent gains, the UK pound jumped above 1 ½ month lows as elevated British inflation backed the case for the Bank of England to raise borrowing rates. The euro and Canadian dollar stabilized after the latter slipped to 2 ½ month lows above 1.35. Broader market sentiment remained subdued with the spotlight on threats to global growth from Chinese weakness and high interest rates. The broadly weighted dollar index has climbed to 1 ½ month highs this week as a run of surprisingly bullish U.S. data validated the Federal Reserve’s forecast of raising rates one more time before the end of the year. Faster consumer spending last month suggested the U.S. economy has accelerated at least 3% during the current quarter after it expanded at a 2.4% clip during the second quarter. Headline British inflation cooled to an annual pace of 6.8% in July, the lowest level in 17 months. But less volatile core inflation that central bankers see as a better signal of underlying price trends topped forecasts at 6.9%. Interest rates will remain top of mind in the day ahead with the Fed set to release the minutes from its last meeting at 2 p.m. ET.
Euro sticks to lower orbit
The euro managed to tread water after it sank below 1.09 this week and hit its lowest level in 5 weeks. News that the euro zone economy expanded last quarter tempered growth fears as the bloc’s economy grew at a 0.3% pace during the April-June period. The euro has slid more than 3 cents, or 3%, from its 17-month peak in mid-July at 1.1275 as China weakness bodes bearishly for European exports to the world’s No. 2 economy.
Sterling boosted by sticky core inflation
The UK pound put some distance between its recent 1 ½ month low against the greenback as domestic data this week kept a low bar in place for London to raise lending rates for a 15th straight time next month. Coming on the heels of record high UK wage growth, core inflation came in a touch hotter than expected at 6.9% in July. Stubbornly high core inflation eclipsed overall inflation which cooled to a 17-month low of 6.8% in July from 7.9% in June. The UK maintaining the dubious distinction of having the highest inflation among its top peers is consistent with area borrowing rates, currently at 5.25%, rising as high as 6%.
Risk aversion weighs on C$
Canada’s dollar fell to 2 ½ month lows above 1.35 against the greenback as subdued risk sentiment overshadowed news of hotter than expected domestic inflation. A worrisome spotlight on the Chinese economy has weighed on commodity-backed currencies, given that the Asian nation is a big buyer of their resource exports. Yet moves to the downside for the loonie were slowed after Canadian inflation rose more than expected to a 3.3% annual rate in July from 2.8% in June. While odds favor Ottawa holding rates steady next month, the risk of a hike by year-end has increased.
Dollar perched near recent highs
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Aug 14-18
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
