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US dollar braces for active week

H.S. Borji
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US dollar braces for active week

The US dollar faces an active and potentially volatile week of trade, as a steady stream of economic data headlined by GDP and nonfarm payrolls influence market sentiment.

The US dollar index, a weighted average of the greenback’s performance against six commonly traded peers, broke 81 integer points last Friday for the first time since early February.

The greenback has been bolstered in recent weeks by renewed optimism the Federal Reserve could begin raising interest rates sooner than forecast. The central bank is expected to eliminate its record bond buying program this fall, paving the way for a rate hike sometime in the middle of 2015. According to Fed Chair Janet Yellen, a speedy labour market recovery could compel the central bank to begin raising rates sooner than expected.

The US calendar features several market-moving events this week. Below is a breakdown of the major events that could impact the greenback this week.

Monday

Markit Group will provide its monthly snapshot of the US service economy. Service activity is expected to have remained elevated in July, after reaching its highest level in four-and-a-half years in June.

The National Association of Realtors will report on pending home sales for the month of June. Pending home sales advanced 6.1 percent in May, an eight-month high. Monday’s report could show pending home sales increased 0.3 percent in June, a sign the housing sector was pulling out of a soft patch.

However, latest figures have given mixed signals about the housing recovery at the end of the second quarter. New home sales tumbled 8.1 percent in June, the Commerce Department reported earlier this month. On the other hand, existing home sales increased 2.6 percent last month, according to the NAR.

Meanwhile, housing starts and building permits both plunged in June, official data showed. Housing starts tumbled 9.3 percent in June and building permits – a gauge of residential building permits – declined 4.2 percent in the same month.

Tuesday

The Conference Board on Tuesday will post its consumer confidence index for the month of July. Economists forecast consumer confidence to have increased slightly this month, with the headline reading advancing from 85.2 to 85.5.

Wednesday

One Wednesday the Commerce Department will release its initial estimate of second quarter gross domestic product. The initial estimate is expected to show the US economy expanded at an annual rate of around 3 percent between April and June, following a disastrous first quarter that saw GDP contract 2.9 percent annually.

Government data last Friday showed durable goods orders rebounded in June, but core capital goods – a component used by economists to calculate GDP – declined 1 percent.

Separately, the ADP Institute will provide an estimate of July employment change. The ADP report is expected to show the US economy added 241,000 private payrolls this month, following a gain of 281,000 in June. The report will be used to gauge the official nonfarm payrolls report later in the week.

The Federal Reserve will issue close out its two-day policy deliberations Wednesday with a monetary policy announcement. Central bankers will keep interest rates near zero and reduce the pace of quantitative easing by another $10 billion to $25 billion, according to forecasts.

The Fed will probably reduce the pace of its monthly bond buying program by another $10 billion at the September policy meetings, followed by a final reduction of $15 billion in October.

Thursday

MNI Deutsche Borse will release its monthly Chicago purchasing managers’ index Thursday. The headline reading, which captures business conditions across the Midwestern states of Illinois, Indiana and Michigan, will increase from 62.6 to 63 in July, according to forecasts.

Separately, the Labor Department will report on weekly jobless claims. Jobless claims, a narrower measure of unemployment, fell to 284,000 in the week ended July 19, the lowest level in nearly a decade.

Friday

The Labor Department will close out the week with July nonfarm payrolls. The US economy is forecast to have added around 230,000 nonfarm payrolls in July, following a gain of 288,000 the previous month. The unemployment rate is forecast to remain unchanged at the nearly six-year low of 6.1 percent.

Average hourly earnings are forecast to have increased 0.2 percent, unchanged from the June rate.

Thomson Reuters and the University of Michigan will post a revised reading of the July consumer sentiment index Friday. The preliminary reading showed consumer confidence dipped in July, as expectations fell for a third consecutive month.

Separately, Markit Group and the Institute for Supply Management will each report on the US manufacturing industry in July.

Markit’s gauge is forecast to slip from 57.3 to 56.

ISM’s PMI index is forecast to rise from 55.3 to 56.

In currency news, the US dollar was unchanged against the euro in the Asian session. The EURUSD pair was trading steady at 1.3430, its lowest since November 2013.

The Eurozone has no major releases slated for Monday. On Wednesday the Federal Statistical Office will report on German consumer inflation for July. Germany’s annual inflation rate in July is forecast to have declined to 0.8 percent.

Germany will also post July unemployment and retail sales figures Wednesday.
Unemployment in Germany is forecast to have declined 5,000.

German retail sales increased at an annual rate of 0.9 percent, according to forecasts.

On Thursday the European Commission will report on Eurozone consumer inflation. Consumer inflation is forecast to have increased at an annual rate of 0.5 percent in July, unchanged from the previous month.

In other trading, the GBPUSD was trading steadily at 1.6976. The pair tumbled more than half a percent last week amid signs the Bank of England will delay an interest rate hike if wages continue to stagnate.

Annual earnings growth in the UK is running a just 0.7 percent, less than half the rate of inflation.

The USDJPY was trading steadily in the Asian session, advancing just 0.04 percent to 101.83.

On Monday the Japanese government will report on June unemployment and retail trade.

The unemployment rate is forecast to have remained unchanged at 3.5 percent.
Retail trade declined 0.5 percent in June, following a 0.4 percent drop the previous month, according to forecasts.

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