With North Korea and the US pulling back from their confrontation stance, the focus turned back to economic releases. The dollar followed an upward path despite weaker housing data, while better than expected labor figures in the UK pushed sterling higher. The lowered US crude inventories published during late European session lifted oil prices.
The dollar index peaked at a fresh three-week high of 94.14 during the European session, ignoring today’s disappointing US data on building permits and housing starts. In July 1,223 million new buildings were authorized to be constructed, a number that was below the forecast of 1,250m and the previous reading of 1,275m. Relative to the previous month, this translates to a negative change of 4.1%, while expectations were for a 2% reduction. This followed a boost of 9.2% in June which was the highest monthly rate experienced since November 2015.
New residential buildings rose by 1,155m (annualized), falling short of 1,220m expected and 1,213m observed in the previous month. On a monthly basis, housing starts shrank by 4.8% compared to a growth of 7.4% in June and a 0.5% rise projected.
Now, the US economic calendar is pending the Fed meeting minutes. Those will be released today at 1800 GMT. The minutes are expected to shed some light on the reasons Fed policymakers held their policy steady and give more details on whether the central bank will proceed with another rate hike, justifying the New York Fed President William Dudley who claimed that a third hike might be needed before the year ends. In addition, investors will look for clues on the timing the Fed will start unwinding its balance sheet. Besides that, investors will keep a close eye on any developments in the NAFTA negotiations which kicked off today and expected to end on August 20.
The safe havens yen and gold continued their downtrend for the third day after risks of a nuclear war was played down, motivating investors to buy back riskier assets. Dollar/yen was last trading at 110.76, while the yellow metal was last seen at $1271.83 per ounce.
Meanwhile, in the UK, the Office for National Statistics published better than expected labor data, giving some support to sterling. According to the numbers, the unemployment rate edged down by 0.1 percentage points to 4.4% in June, better than the 4.5% that was expected by the forecasters. This was the lowest level reported since 1975 and was below the BOE’s threshold of 4.5%. The office also released the change in the number of unemployed people for the month of July. Unemployed people surprisingly reduced by 4,200 for the first time after four months of rises, while analysts anticipated an increase by 3,700. In June, the figure had climbed by 3,500 (a downward revision from 6,000).
Moreover, weekly average earnings (three months) including bonuses in the three months to June grew unexpectedly by 2.1% y/y, compared to 1.9% in May (upwardly revised from 1.8%), while forecasts were for a rise of 1.8%. Excluding bonuses, earnings were up by 2.1% and above the forecast of 2%, which was also May’s reading. Although wages started strengthening, British consumers could still feel inflationary pressures in their spending as prices grew faster than earnings. This also weighed on economic expansion which dropped this year and motivated BOE policymakers to lower GDP growth forecasts for the next two years.
As a response to the above, sterling jumped immediately by 0.36% to an intra-day high of $1.2901. However, its gains were short-lived as cable fell back to $1.2857 in late European session. Versus the euro, sterling climbed by 0.42% with euro/sterling sinking to 0.9099.
The euro reversed yesterday’s gains against the greenback as media sources announced that the ECB chief Mario Draghi would not use the US Fed’s Jackson Hole conference next Friday to deliver a message about the ECB’s strategy to tighten monetary policy. Given the positive economic climate in the block, investors expected Draghi to take the opportunity and signal the start of unwinding the banks’ ultra-loose monetary policy despite him saying in the last policy meeting he would hold off on the discussion until autumn. Before the news spread out, the euro was struggling to find support on preliminary GDP data out of the Eurozone. The GDP growth prints showed that eurozone’s output expanded slightly by 0.1 percentage points in the second quarter to 2.2% y/y, surpassing the forecast of 2.1%. On a quarterly basis, the output growth remained unchanged at 0.6% as expected.
The euro changed hands with the dollar at $1.1694.
In the commodity markets, oil prices rose after the EIA report showed that US crude oil inventories fell by 8,945 million barrels last week, while expectations were for a drop of 3,058 million barrels. This reduction was the largest tracked since September 2016. In the preceding week ending, inventories were down by 6,451 million. On the day, WTI crude was 0.5% down at $47.33 per barrel, while Brent was up on the margin at $50.82 per barrel.
The commodity-linked loonie reacted positively to the EIA report, with dollar/loonie falling by 0. 50% to 1.2691.
