USD: The greenback returns on renewed optimism

The US dollar regained some steam last week as the two major jobs reports for July came with stronger than expected results, reassuring analysts that the US economy is still going strong and the Fed has a better chance of raising interest rates before the end of the year. Markets are now pricing in a 47% chance of an end-of-year Fed interest-rate hike, up from 36% before the jobs reports — still leaving some room for the dollar to strengthen should those odds improve this week. The greenback had started the week at its lowest levels since early July after the prior Friday’s weaker-than-expected 2nd quarter GDP data gave investors pause after a string of good jobs and inflation data.

With this week’s much lighter release of significant market data, the greenback could well continue its upward momentum against other major currencies unless other world economies show unexpectedly positive economic results. Tuesday will bring a productivity report for the second quarter of the year, while Wednesday will show mortgage application volumes (a leading housing market health indicator) and JOLTS job openings data for June. Data released late in the week will have more impact on the dollar, with the latest jobless claims and trade data to come on Thursday and retail sales for July and producer inflation data to cap the week off on Friday. Analysts are still optimistic for the dollar, so negative surprises this week could dampen the greenback’s strength.

EUR: Possible comeback this week on more Euro-zone data

The euro trended lower last week on a lack of significant Euro-zone data combined with the relative strength of the US dollar. Investors are still uncertain on the region’s economic outlook weeks after the EU referendum, but better-than-expected growth, inflation, and confidence post-Brexit data released out of Europe in recent weeks have helped push the euro to some of its highest levels since the UK’s big vote.

As investors continue to read more post-Brexit data this week, look for the euro to potentially rebound against a calmer US dollar if strong post-Brexit economic results come out of the Euro-zone. Tuesday brings trade data from the EU economic powerhouse of Germany, while Wednesday’s inflation and unemployment data out of Portugal will show how smaller countries are faring post-Brexit. Thursday morning will offer more post-Brexit results with France’s consumer inflation from August and Italy’s trade and consumer inflation data from July. Friday will show consumer inflation data from Germany and Spain as well as very influential 2nd quarter GDP data out of Germany, Portugal, Italy and the broader Euro-zone region.

GBP: More post-Brexit showers bring more economic doubters

Despite Tuesday’s gain with investors suspending their pessimism for a day, the pound ended lower for the week after suffering its longest losing streak since the Brexit vote. Investor fears of strong central bank action were realized after the Bank of England slashed UK economic growth forecasts sharply, cut rates for the first time in seven years to a record-low 0.25%, and announced an unexpected £100 billion bank lending plan and a corporate/government bond purchasing plan. The bank’s announced efforts to boost the UK economy came after a series of post-Brexit data showed some of the worst economic results in years or since the great recession.

Few expect the pound to rebound much this week as investors remain very pessimistic on the UK economy and as there will be relatively little new post-Brexit data released. Tuesday’s industrial and manufacturing production and trade balance data will show older results from June, leaving Wednesday’s housing price data for July and Thursday’s overall economic reading as the only clues to the UK’s economic health this week in a post-Brexit world.

CAD and AUD: Hitching a ride on oil prices and confidence levels

The Canadian dollar was ticking higher last week as oil prices recovered from multi-year lows, though it ultimately ended lower though after Friday’s strong US jobs reports strengthened the greenback at the northern currency’s expense. This week, look for a continued uptick in oil prices to potentially lift Canada’s currency, especially with another light week for data. That said, with analysts expecting growth from Tuesday’s housing starts data from July and Friday’s new-housing price data from June, any negative surprises for the US’ largest trading partner could put pressure on the Canadian dollar.

The Australian dollar climbed to its highest levels since May last week despite an expected interest rate cut from the Reserve Bank of Australia, mostly as analysts increased their bets that the RBA would wait before announcing any more stimulus (quantitative easing) measures. This week, as analysts remain cautiously optimistic on Australia’s economy, look for strong business and consumer confidence levels on Monday and Tuesday night to keep the Aussie’s upward momentum going. Capping the week off early for new data releases Australia, Tuesday night’s comments from RBA Governor Glenn Stevens will give investors more clues on the bank’s economic outlook. Look for optimistic signals from Steven’s speech to fuel the Aussie dollar, and pessimistic signals to increase the chances of stimulus plans, which would dampen the currency’s strength.