The US Dollar Index barely moved a needle following the release of US consumer price index this morning. The core CPI rose 0.3% in July, bringing the all items index to 1.8% for the last twelve months. The focus of the market remains on the battle being waged between the two major trading partners – the US and China. The latest inflation reading may, though, send the Twittersphere into a new tirade on the Fed not doing enough with rate cuts. Attention is likely to shift towards China by end of the day with the releases of heavy-duty data: industrial output, employment and sales.
USD/CAD is trading around the mid-point of 1.32, directionless in thin market. The loonie went through a volatile session after crude oil prices plunged 9% over the previous week. In the absence of any major data releases from Canada this week, we expect the pair to be driven mainly by external factors: ongoing US-China trade tensions, oil prices and growing local expectations that the Bank of Canada could be forced to buy an insurance rate cut in two weeks’ time.
EUR/USD stays within touching of the 1.12 handle, ignoring worst-than-expected German ZEW Economic Index. The indicator, in August, points to minus 44.1 well below market estimates and recording a drop of 19.6 points over the previous month. Economic outlook for Germany has worsened substantially in August – no surprise for many and is likely to drag growth in the region lower over the coming months. Escalation of trade tension between China and the US leading to a currency war and the growing likelihood of a no-deal Brexit are the main drivers pushing sentiment to its lowest level in nearly eight years.
Data from the employment survey released this morning in the UK was mixed. The unemployment rate rose by 0.1% point over April-June. On the other hand, average weekly earnings increased by 3.9% for regular pay (excluding bonuses). The reaction from the Pound was at best muted, enjoying a two-day temporary gains ahead of the 1.21 handle.
Sentiment has switched back to risk-off mode over worsening growth outlook from the Eurozone, trade tensions and escalation in protests in Hong Kong. Traditional safe-haven currencies such as the Yen is expected to strengthen, and USD/JPY is vulnerable to lower lows. US inflation report card failed to attract USD bulls and Chinese data are expected to drive market sentiment this week.