The Dollar, Euro and Sterling are ending the week on a bit of whimper. The Dollar weakened a tad following the release of preliminary Q2 GDP data. While growth jumped to 4.1% qoq annualised from 2.2% in Q1 this was at the low-end of estimates particularly when the fact that GDP growth has been strongest in Q2 since 2014 is factored in. In any case markets are likely to quickly move on next week’s Federal Reserve policy meeting and specifically whether the Fed has moved any closer to baking in a 25bp rate hike at its September meeting.
The Euro has now lost ground for three consecutive sessions, with markets seemingly disappointed that the ECB is sticking to its view that it will probably keep its policy rates unchanged at least through summer 2019. Eurozone economic growth and inflation remain on the soft side with the macro outlook clouded by a US-centric global trade war and the ECB is likely to remain cautious near-term.
Sterling has also weakened in the latter part of the week despite markets seemingly pretty certain that the Bank of England will hike rates 25bp at its policy meeting on 2nd August. Sterling’s price action suggests that markets may not be as certain as they appear and that in any case Brexit very much remains the elephant in the room. And on that front EU negotiators are at best lukewarm about Prime Minister May’s post-Brexit blueprint, having in particular rejected the British government’s plans for a bespoke customs union.
