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British data puts the euro under pressure

Volatility on the euro/dollar pair during the European session is off the charts. At the beginning of the session, the single currency rose to 1.1758 before dropping to 1.1691 (-67 pips) in the space of 25 minutes. This drop was the result of a report from Reuters that ECB president Mario Draghi wouldn’t be delivering any new messages on monetary policy at the US Fed’s Jackson Hole conference on the 25th of August.

Buyers then managed to get the rate back up to 1.1740 in the space of an hour and a half, helped along by UK data, which shows a reduction in the unemployment rate and overall number of unemployment benefit claimants for the second quarter.

The British pound rose 48 pips against the US dollar to 1.2903 after a favourable labour market report. The euro/dollar pair fell to 1.1695 as a result of pressure from the falling euro/pound cross. The Eurozone’s GDP data for Q2 didn’t have any effect on the market. The year-on-year growth rate was upgraded to 2.2% from the preliminary reading of 2.1% against a forecast of 2.1% YoY.

The release of FOMC minutes is still the key event of the day. Traders and investors will be looking for hints as to the time scale involved in reducing the Fed’s balance sheet as well as their assessment of the latest statistical data to have come out (labour market and inflation), which will give the market an indication of how worried the Fed is about the slowdown in inflation growth.

The US dollar is showing mixed dynamics against the majors. It’s falling against commodity currencies and rising against safe havens (the yen and franc). The pound is trading at almost the same level as Tuesday’s closing price. The euro has fallen against the dollar by 0.2%. At the time of writing, the euro/pound cross is recovering from its recent losses. If buyers manage to get a foothold above 0.9105, the euro/dollar rate should once again move towards 1.1740. If 1.1685 gets broken through, buyers won’t be able to prevent a further slide to 1.1645. We need to keep an eye on the euro/pound cross as well as US bond yields.

European statistics:

  • Eurozone: GDP (Q2): 0.6% QoQ, 2.2% YoY (forecast: 0.6% QoQ, 2.1% YoY).
  • UK: ILO unemployment rate (Jul): 4.4% (forecast: 4.5%, previous: 4.5%).
  • UK: claimant count change (Jul): -4,200 (forecast: -3,700, previous reading revised from -5,900 to -3,500).

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