USD: Takes the “safe-haven” title for a second week

The US dollar climbed to 7-week highs last week as investors remained optimistic on the US economy’s growth and the Fed’s chances of an interest rate hike before the end of 2016. The dollar continues to be perceived as the “safe-haven” currency in the world after last Tuesday’s better-than-expected housing starts data followed positive US retail sales and job growth data released earlier this month. The US dollar also gained for a second week against the yen, which is struggling as investors anticipate more stimulus policy from the Bank of Japan as the country struggles with low inflation.

This week, investors are looking for Tuesday’s consumer confidence, business activity, and new home sales data to continue to reflect economic optimism to fuel the dollar’s strength. On Wednesday, the vast majority of analysts don’t expect the Federal Reserve to hike interest rates at its meeting. That said, the futures markets are pricing in at least a 40% chance that the central bank will raise rates by end of the year, meaning the dollar could strengthen should those odds improve with more good economic news in the future.

EUR: Pessimism overtakes ECB decision

The euro trended lower last week as uncertainty and pessimism overshadowed the European Central Bank’s decision to not cut interest rates. Euro-Zone and German sentiment surveys from ZEW revealed that institutional investors were much more pessimistic on the future of their respective economies than before the Brexit vote. And while the ECB decided to keep interest rates the same as it waits on more post-Brexit data, the market has priced in a better-than-50% chance of a rate cut by October, especially if inflation remains stubbornly low and if Brexit is found to have damaged the Euro-zone. A further uptick in those odds with future post-Brexit data could push the euro lower.

This week, significant data won’t come out until later in the week for the euro. Wednesday will bring post-Brexit consumer confidence surveys for Germany and Italy, while Thursday will feature Germany’s unemployment and inflation results from July. Perhaps the most influential euro movers will come on Friday afternoon with the Euro-zone’s 2nd quarter GDP and unemployment rate results. While most of Friday’s data will be pre-Brexit, better-than-expected results in the weeks leading up to the historic vote could buoy the euro until more Euro-zone post-Brexit data comes out later.

GBP: Post-Brexit data knocks the pound back down

The pound ended its choppy week ultimately lower after Thursday’s post-Brexit data showed UK business activity falling at its fastest rates since the last recession, which signaled a heightened risk of a UK recession in the future. Earlier in the week, there were glimmers of hope with an uptick in UK consumer prices driven by higher airfare on trips in continental Europe and as the unemployment rate (ended May) fell to 4.9% — the lowest unemployment levels since 2005. But stubbornly low inflation, the slide in business activity, and an 80% market-priced chance of a Bank of England interest rate cut in August ultimately kept the pound from trending higher.

Anticipate a light data week for the pound, with 2nd quarter GDP data coming out on Wednesday and post-Brexit nationwide housing price and consumer confidence data to come out early Thursday. Friday afternoon will bring mostly pre-Brexit consumer credit and mortgage approval data. With investor expectations for the UK being mostly negative (especially on the post-Brexit data), any positive surprises this week could help push the pound up from its historically-low levels.

CAD and AUD: Dragged down with oil and interest-rate cut potential

The Canadian dollar, which is tied heavily to oil prices (oil is the nation’s largest export), fell each day for the entire week mostly as crude oil prices sank from $46 to below $44 per barrel at the end of the week. Still, better-than-expected retail sales and inflation data helped slow the descent of the falling Loonie.

The Australian dollar tumbled during the week as investors increased their bets on a near-term interest rate cut from the Reserve Bank of Australia. At the end of the slow-data week, markets priced in a 68% chance of a rate cut in the next RBA meeting, up from 56% earlier in the week.

Expect another light data week in Australia, with a 2nd quarter consumer inflation data release on late Tuesday and 2nd quarter import/export pricing data to come late on Wednesday. Canada will have even lighter data, with GDP data from May to be released on Friday along with raw material and industrial product price data from June. Analysts have been relatively more optimistic on these economies, so any negative surprises could lead the Aussie dollar or the Canadian dollar to another down week.