EUR/US$
The dollar was unable to make any impression on the Euro in early Europe on Friday and drifted weaker as risk appetite was generally firmer. Ahead of the US economic releases, the Euro pushed to a high of 1.4150 before correcting slightly weaker.
US GDP contracted at an annualised rate of 1.0% for the second quarter compared with a revised 6.4% decline for the first quarter and this was slightly stronger than expected. Consumer spending was weaker than expected, but there was a stronger performance from exports and investment while inventories fell at a slower rate.
The Chicago PMI index strengthened to 43.4 for July from 39.9 the previous month. The data overall will maintain expectations that the US recession will end during the second half of 2009 and this also helped underpin risk appetite which lessened dollar demand.
There were also important technical considerations on the last trading day of the month and position adjustment helped push the Euro to a high of 1.4275 before consolidation around 1.4250. The trading pattern will be watched closely next week to assess whether there is sustained Euro demand at the start of the new month.
Source: VantagePoint Intermarket Analysis Software
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Yen
The latest data recorded inflows of close to US$400mn into Japanese investment trust launches over the past few days which will maintain expectations of firm capital flows into overseas high-yield instruments which would also tend to weaken the yen.
The Japanese data registered a record 1.7% decline in consumer prices in the year to June which will maintain underlying deflation fears while unemployment rose to 5.4% from 5.2% previously with job openings at a record low. The PMI data was more positive with a recovery to above the 50 level, but there will be pressure for the supportive monetary policy to continue and there will also be internal opposition to substantial yen gains.
As international risk appetite was generally firmer, the dollar held above the 95 level against the Japanese currency ahead of Friday’s US GDP data before a decline to 94.75 in US trading..
Sterling
Sterling found support below the 1.65 level on Friday and pushed back above the 1.65 level in Europe. US dollar weakness in the New York session allowed the UK currency to challenge 2009 highs above 1.67 while Sterling also gained month-end support against the Euro and consolidated around the 0.8530 level.
Trends in risk appetite continued to have an important influence and Sterling gained support as international equity markets rallied.
Attention will tend to focus on the Bank of England next week with the central bank due to review the quantitative easing process and whether to expand the programme. Any hints over an expansion would tend to underpin Sterling to some extent.
The UK industrial and PMI data will also be watched closely to assess the potential recovery path for the economy.
Swiss franc
The dollar was unable to regain the 1.09 level against the franc on Friday and weakened sharply in US trading with lows around 1.0660. The Swiss currency also regained ground against the Euro with a move back towards the 1.52 region.
Markets will be on high alert for National Bank intervention if the dollar continues to slide against the Swiss currency with a particular focus on the 1.06 region.
The Swiss KOF index strengthened to -0.99 for July from a revised -1.49 the previous month which suggests that the economy may be starting to recover at a faster pace, although confidence will remain fragile.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The domestic inflation data was stronger than expected and this maintained speculation that the Reserve Bank would continue with a bias towards higher interest rates. Risk appetite was also generally firmer over the day which underpinned sentiment and confidence will remain firm in the very short term.
The Reserve Bank is liable to sell Australian dollars at current levels to restrain the advance and there are also still important risks surrounding the global economy. Nevertheless the Australian dollar challenged levels above the 0.83 level in US trading as the US dollar was generally weak with a peak close to 0.8360.
