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    Dollar rallies after GDP bump supports early rate hike

    USD

    The dollar rose on Thursday after GDP data showed strong growth in Q2 increasing the chances of an early rate hike from the Fed.

    The 2.3% rise in the second quarter was not as high as expectations of 2.5% but it was still much higher the slow first quarter, which itself was revised up from -0.2% to 0.6%, in part due to a new methodology which takes into account seasonality. The rise to 2.3% in Q2 supported the Fed’s argument that sluggish Q1 growth was transitory, and helped smooth the way to an early rate hike, possibly even as soon as September.

    The rise in growth was mainly propelled by greater consumer spending, which accounts for two-thirds of U.S GDP; with analysts suggesting this may have been due to lower prices at petrol pumps leaving consumers with more spare cash as well as a better jobs market.

    Personal Consumption Expenditure (PCE) rose well above expectations, coming in at 1.8% qoq in Q2 from 1.0% previously, when a rise of 1.5% had been expected. PCE is known to be closely watched by Fed members as a gauge of inflation, so the rise further stoked policy normalization speculation.

    EUR

    The euro weakened on Thursday due partly to German CPI slowing slightly year-on-year, although it was only a marginal decline, and it was also due to other currencies such as the dollar strengthening.

    On a month-on-month basis German CPI rose to 0.2% from June’s -0.1%, which was an improvement – so in the short-term inflation picked up.

    Sentiment data was higher-than-expected in most sectors, with Euro-zone Economic Confidence rising to 104.0 in July from 103.5 previously when a fall to 103.2 had been expected. Consumer Confidence remained at -7.1 in line with expectations; Services Confidence rose to 8.9, from 7.9, beating expectations of a lesser rise to 8.0, Industrial Confidence improved to -2.9 and Business Climate Indicator increased to 0.39 from 0.14.

    The ECB Economic Bulletin was upbeat in its assessment of the economic outlook for the euro-zone, arguing that monetary easing policies were increasing liquidity and leading to more bank lending to businesses and individuals. Growth was increasing at a moderate pace and inflation rising steadily.

    GBP

    The pound traded mixed on Thursday after a lack of data made it more susceptible to news impacting on counterparts.

    The main data release was Gfk Consumer Confidence, which fell slightly to 4 in July from 7 previously, when a lesser contraction to 5 had been forecast.

    The 7 print in June was the highest since January 2000, so overall sentiment remains buoyant.

    Gfk cited Grexit fears and Chinese stock-market sell-off fears as reasons for the dip in confidence, as well as a general increased concern about the outlook for the U.K economy, although the general message remained strong.

    JPY

    The yen lost ground today versus the dollar mainly as a result of a doveish statement from the FOMC meeting. There was a slew of lower tier Japanese data this morning which was fairly negative, easing the yen.

    Overnight data revealed that Industrial Production in Japan rebounded 0.8% mom in June, exceeding market expectations of a gain of 0.3%. Industrial Production in the nation dipped 2.1% in the previous month.

    Meanwhile Vehicle Production in Japan slid 5.30% yoy in June after registering a fall of 16.60% in the previous month.

    Comments by BOJ board member Ishida today itemised some of the issues being debated by the board. There is a fear in some quarters risks may be building in Japan’s financial system as a result of QQE, although he did not see any signs of huge financial imbalances or excessive risk taking building up for now.

    He did not think it was appropriate to strip out food costs in gauging Japan’s price trend, as food represents up to a quarter of household’s total spending.

    Commenting on Japan’s economic outlook, concerns revolved round the extent to which China’s slow down would affect the economies of the emerging countries, Europe’s debt woes, and the pace of the US recovery, were all factors that had the potential to affect Japan’s recovery.

    Going forward investors will be keeping a close eye on Japan’s CPI and unemployment data scheduled for release overnight.

    USD

    The dollar rose on Thursday after GDP data showed strong growth in Q2 increasing the chances of an early rate hike from the Fed.

    The 2.3% rise in the second quarter was not as high as expectations of 2.5% but it was still much higher the slow first quarter, which itself was revised up from -0.2% to 0.6%, in part due to a new methodology which takes into account seasonality. The rise to 2.3% in Q2 supported the Fed’s argument that sluggish Q1 growth was transitory, and helped smooth the way to an early rate hike, possibly even as soon as September.

    The rise in growth was mainly propelled by greater consumer spending, which accounts for two-thirds of U.S GDP; with analysts suggesting this may have been due to lower prices at petrol pumps leaving consumers with more spare cash as well as a better jobs market.

    Personal Consumption Expenditure (PCE) rose well above expectations, coming in at 1.8% qoq in Q2 from 1.0% previously, when a rise of 1.5% had been expected. PCE is known to be closely watched by Fed members as a gauge of inflation, so the rise further stoked policy normalization speculation.

    EUR

    The euro weakened on Thursday due partly to German CPI slowing slightly year-on-year, although it was only a marginal decline, and it was also due to other currencies such as the dollar strengthening.

    On a month-on-month basis German CPI rose to 0.2% from June’s -0.1%, which was an improvement – so in the short-term inflation picked up.

    Sentiment data was higher-than-expected in most sectors, with Euro-zone Economic Confidence rising to 104.0 in July from 103.5 previously when a fall to 103.2 had been expected. Consumer Confidence remained at -7.1 in line with expectations; Services Confidence rose to 8.9, from 7.9, beating expectations of a lesser rise to 8.0, Industrial Confidence improved to -2.9 and Business Climate Indicator increased to 0.39 from 0.14.

    The ECB Economic Bulletin was upbeat in its assessment of the economic outlook for the euro-zone, arguing that monetary easing policies were increasing liquidity and leading to more bank lending to businesses and individuals. Growth was increasing at a moderate pace and inflation rising steadily.

    GBP

    The pound traded mixed on Thursday after a lack of data made it more susceptible to news impacting on counterparts.

    The main data release was Gfk Consumer Confidence, which fell slightly to 4 in July from 7 previously, when a lesser contraction to 5 had been forecast.

    The 7 print in June was the highest since January 2000, so overall sentiment remains buoyant.

    Gfk cited Grexit fears and Chinese stock-market sell-off fears as reasons for the dip in confidence, as well as a general increased concern about the outlook for the U.K economy, although the general message remained strong.

    JPY

    The yen lost ground today versus the dollar mainly as a result of a doveish statement from the FOMC meeting. There was a slew of lower tier Japanese data this morning which was fairly negative, easing the yen.

    Overnight data revealed that Industrial Production in Japan rebounded 0.8% mom in June, exceeding market expectations of a gain of 0.3%. Industrial Production in the nation dipped 2.1% in the previous month.

    Meanwhile Vehicle Production in Japan slid 5.30% yoy in June after registering a fall of 16.60% in the previous month.

    Comments by BOJ board member Ishida today itemised some of the issues being debated by the board. There is a fear in some quarters risks may be building in Japan’s financial system as a result of QQE, although he did not see any signs of huge financial imbalances or excessive risk taking building up for now.

    He did not think it was appropriate to strip out food costs in gauging Japan’s price trend, as food represents up to a quarter of household’s total spending.

    Commenting on Japan’s economic outlook, concerns revolved round the extent to which China’s slow down would affect the economies of the emerging countries, Europe’s debt woes, and the pace of the US recovery, were all factors that had the potential to affect Japan’s recovery.

    Going forward investors will be keeping a close eye on Japan’s CPI and unemployment data scheduled for release overnight.


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