USD: Looking for better week with a strong July jobs report

The US dollar started last week at its highest levels in more than a month, but was ultimately knocked down to its lowest levels since early July against the world’s major currencies. As the impacts of the Brexit vote continued to weigh on other economies, investors increasingly grew bearish on the prospects of a Federal Reserve interest-rate hike to happen before the end of the year, weakening the dollar’s value. Last Friday’s 2nd quarter GDP data was the final nail in the dollar’s coffin for the week, with results showing the US economy grew by just 1.2% annualized – less than half as fast as the expected 2.5% annualized GDP growth. Markets are currently pricing in just a 36% chance of an end-of-year Fed interest-rate hike, and a 50% chance of one by September 2017, though any positive surprises between now and then could buoy the dollar.

This week, the greenback is off to a better start as US manufacturing growth data from July showed relatively stronger results than peer reports in the UK and broader Eurozone. Investors were thrown for a loop with last Friday’s worse-than-expected 2nd quarter GDP report, but are still relatively optimistic on the US economy versus the rest of the world. If Tuesday’s consumer spending data, Wednesday’s ADP employment and business activity data, and Friday’s all-important non-farm payroll report shows the US still in resilient shape, the dollar could regain much of the strength it lost last week.

EUR: Strong recovery as more post-Brexit data surfaces

The euro had a strong recovery last week, returning to levels not seen since the day after the Brexit vote. Because investors were (and have been) mostly pessimistic about post-Brexit growth in Europe, a series of better-than-expected business activity, business and consumer confidence, and consumer inflation data out of Germany and the broader Eurozone helped push the euro higher.

While analysts have expected larger economies like Germany to absorb the effects of Brexit, investors may send the euro higher if this week brings positive post-Brexit data from the smaller economies of Italy, France, and Spain. Monday’s post-Brexit manufacturing activity levels in Italy, France, Germany, and the broader Eurozone were in line with analyst expectations, keeping the euro steady. Look for more post-Brexit cues in Tuesday’s producer inflation data for the Eurozone, and in Wednesday’s services activity data from Italy, France, Germany, and the broader Eurozone, after the morning’s European Central Bank non-monetary policy meeting. Thursday will bring a Eurozone economic bulletin report that will cover more of what the ECB talked about in July’s meeting, while Friday will showcase import/export data out of France and industrial and factory output data out of Germany, Spain, and Italy.

GBP: Looks for bright spots among weak post-Brexit data

The pound traded choppy last week as market futures priced in a 100% chance that the Bank of England would cut interest rates at its August 4th meeting (rate-cut chances were 80% the prior week and just 15% before the Brexit vote). Likely fueling that pessimism was a survey from the Centre for Economics and Business Research and Yougov revealing the lowest UK consumer confidence levels since July 2013, and the CBI’s report showing the UK’s retail sales falling to four-year lows. Ultimately the pound ended the week higher versus the dollar, but that’s mostly because the US dollar fell on Thursday and Friday after its poor Q2 GDP results.

This week, sterling is off to a rough start with UK manufacturing data from July missing analyst expectations, even as analysts weren’t overly optimistic for economic growth since the Brexit vote anyway. Investors are looking with a pessimistic lens toward more post-Brexit data with Tuesday’s construction sector report and Wednesday’s services numbers, so positive surprises could help boost the pound this week. While nearly all analysts are expecting an interest-rate cut for Thursday’s Bank of England meeting, any less-expected stimulus measures (such as quantitative easing and negative interest rate policy) could put pressure on the pound.

CAD and AUD: Both higher at the US dollar’s expense

Despite oil prices tumbling below $42 a barrel last week, the Canadian dollar ended last week higher against the US dollar almost entirely due to the greenback’s tumble on Thursday and Friday. Most of the limited inflation, wholesale, and retail sales data out from Canada last week was from May and June, which had minimal impact on the Loonie’s value. Over in the Pacific, the Australian dollar climbed for the week also thanks to the weaker US dollar, though better-than-expected inflation data helped buoy the Aussie dollar earlier in the week.

In Australia this week, the majority of analysts expect the Reserve Bank of Australia to announce an interest-rate cut at its late-Monday meeting, which means a surprise non-cut announcement could push the Aussie dollar up. The next big news will come late on Wednesday with Australia’s retail sales data for June coming out, and Thursday will cap the week off with national construction data from July and a monetary policy statement from the RBA later in the day. Analysts have been mostly neutral or slightly optimistic on Australia’s economy, so negative surprises this week could hold the Aussie dollar down.

Expect another light data week in Canada, with RBC’s manufacturing data for July coming on Tuesday morning, followed by a dry spell until Friday morning when a slew of import/export and employment data from July comes out. With another slow week in Canada, the Loonie could continue to move opposite the US dollar (i.e. a stronger US dollar could push the northern currency lower) and/or be heavily tied to oil price movements, which have been trending lower in recent weeks.