Forex Market Review (European Session) – Dollar continues declining after robust growth; loonie eyes fresh high

Forex Market Review (European Session) – Dollar continues declining after robust growth; loonie eyes fresh high

Second quarter US GDP estimates dominated investors’ attention during today’s European session trading. Certain components within the data led to the dollar recording losses as the news became public, though those were short-lived. In other notable releases, Canadian growth figures for May were released today as well.

The much-awaited preliminary US GDP estimates for the second quarter of the year showed the economy expanding at an annualized rate of 2.6%, as expected. First quarter growth was revised downwards to 1.2% from the previous 1.4%. The advance GDP deflator estimate, which acts as a broad inflationary indicator by measuring the change in the price of all goods and services included in GDP calculations, showed a 1.0% quarter-on-quarter growth during the second quarter. This fell short of expectations for a reading of 1.3% and came in below the first quarter’s respective number of 2.0%, which was the result of an upward revision from 1.9%.

The figures verify that the slowdown during the first quarter was temporary, as increased consumer spending led the way for stronger growth during the second quarter of the year. However, price data in the report are suggesting that inflation is moving significantly below the Federal Reserve’s 2% target. The greenback initially reacted negatively to the data relative to majors including the yen, euro and the pound, though it quickly made up those losses, especially with respect to the latter two.

Other US data pertained to the final reading of the University of Michigan’s Consumer Sentiment index. That came in at 93.4, above forecasts and the previous month’s 93.1. Dollar/yen advanced on the data, though it didn’t manage to maintain those gains for long.

In terms of forex market movements, the dollar index, which gauges the greenback against the currencies of six major US trading partners, was last down by a sizable 0.5% on the day and close to the 13-month low of 93.15 hit yesterday. Dollar/yen was 0.3% down, trading around the 111 level.  Euro/dollar was up 0.6% at 1.1737 and pound/dollar 0.3% up, marginally above the 1.31 handle.

In other news, the Swiss franc continued losing ground versus the euro in today’s trading, looking set to record its fourth straight day of declines. Euro/swissie today touched 1.1396, the highest since the Swiss National Bank dropped its peg on the euro in mid-January 2015. The movement is in part attributed to the European Central Bank and Swiss National Bank seemingly diverging in terms of monetary policy.

Canada saw the release of GDP numbers for May today. The nation’s economy expanded by 0.6% month-on-month, far outpacing expectations for a growth rate of 0.2%, which also coincided with the previous month’s figure. The loonie gained on the data, with dollar/loonie eventually falling to as low as 1.2419, close to the 25-month low of 1.2413 hit yesterday. The pair traded at 1.2525 before the numbers went public. The Canadian dollar has also been gaining on the back of rising oil prices as Canada is a major oil exporter.

Turning to commodities, gold gained on the back of dollar weakness, rising to a one-and-a-half-month high of $1267.85 an ounce in today’s trading. The precious metal was last trading close to this level. WTI and Brent crude maintained momentum from previous days. They traded at $49.60 a barrel and $52.40, up 1.1% and 1.8% respectively, in afternoon European trading hours.

The Baker Hughes Oil Rig Count will be released at 17:00 GMT. FOMC voting member Neel Kashkari is scheduled to speak at 17:20 GMT.

Source: Trade Forex with XM.

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