The US Dollar had a choppy week against major currencies, with two up days and three down days, ending the week broadly unchanged. US macro data were, as has often been the case in recent months, stronger than expected and point to a rapid recovery in economic growth in July even if private-sector job creation slowed sharply. The ISM manufacturing PMI rose to 54.2 – its highest level since March 2019 – from 52.6 in June while the arguably more important non-manufacturing PMI rose from 57.1 in June to a 15-month high of 58.1.
Similarly Sterling traded in a narrow versus the Dollar around the 1.305 level but lost a bit of ground versus the Euro, with the GBP/EUR cross trading back below 1.11.
The Bank of England MPC left its policy rate unchanged at a record-low 0.1% and its QE program unchanged at £475bn at its meeting on Thursday, in line with expectations. More interesting were its revised quarterly forecasts. Bank of England said the initial hit from the national lockdown was not as severe as it had projected in May but that’s not saying much given its initial apocalyptic forecasts. Indeed it forecast that GDP in Q2 was more than 20% lower than in Q4 2019 which if correct would imply that UK economy shrank by more in H1 2020 than any other major economy bar Spain. Importantly, Bank of England forecast that GDP growth would slow dramatically after Q3, that GDP level at end-2020 would still be 5% below its pre-pandemic peak and would only reach its pre-covid peak at the end of 2021.
In Australia macro data (including retail sales) and the Reserve Bank of Australia policy meeting provided few surprises. The AUD/USD cross temporarily traded above 0.72 before ceding some ground to end the week around 0.715.