The dollar stabilises after a Treasury-driven sell-off

USD

The dollar stabilised on Thursday, with the DXY index holding below 99, even as US data impressed at the margin. Initial jobless claims fell to 206k against expectations of 210k, while the August Philly Fed index surged to 47.4, its highest reading since April 2021. Ordinarily this would have lifted the greenback, but price action continues to be dominated by Treasury Secretary Bessent's Wednesday decision to double long-dated bond buybacks. Despite a CNBC appearance to reassure markets, Bessent’s comments yesterday failed to resurrect the buck, given lingering inflationary concerns amongst other factors. As we flagged in our week ahead, today's flash PMIs at 14:45 BST close out a data-light week for the US, with attention then turning to Chair Warsh's first Jackson Hole address next week.

EUR

The Treasury-driven slide in long-end US yields propelled EURUSD through 1.16 on Wednesday, with the pair holding just shy of 1.17 yesterday and into this morning. That said, the euro remains hostage to the Middle East, a dynamic in focus ahead of today’s PMI numbers. With the US-Iran ceasefire lapsed, the UAE cutting economic ties with Tehran, and Ukrainian strikes on Russian energy infrastructure compounding supply risks, energy costs are an increasingly stagflationary force for the bloc. Today's August flash PMIs (France at 08:15, Germany at 08:30 and the eurozone aggregate at 09:00 BST) should reveal how firms are absorbing that squeeze. Signs of resilience alongside rising input costs would bolster ECB hawks, but a modest growth wobble looks more likely on balance, which would likely see some recent euro strength fade.

GBP

Cable trades in the mid-1.36s this morning after sterling spent yesterday playing catch-up with Wednesday’s euro price action. Still, we think it is notable that the pound has failed to keep pace one-for-one, leaving GBPEUR modestly lower over recent days. Indeed, domestic factors are also having an impact, a dynamic that should be on show yet again today. July retail sales disappointed at 07:00 BST, with the ex-auto measure falling -0.9% MoM. This is set to be followed by August flash PMIs at 09:30 BST, where we look for the composite measure to slip back in August, after July surprised with a jump back to 52.0. If correct, a soft set of indicators should test the durability of this week's sterling gains.

CAD

The loonie continues to grind higher, with USDCAD slipping again overnight. The move reflects a potent combination of supports: Brent's 5% weekly advance on the escalating US-Iran confrontation and Hormuz disruption flatters Canada's terms of trade, while the US-Canada yield spread has narrowed as US yields retreat. Today's focus is June retail sales at 13:30 BST, which should confirm whether household spending is keeping pace with the improvement elsewhere in the Canadian economy, alongside spillovers from the US flash PMIs. A solid set of prints could see USDCAD extend towards 1.37, especially with rising optimism that a US-Canada trade agreement might now be on the horizon.

Disclaimer

This information has been prepared by Monex International Markets plc, part of Monex S.A.P.I. de C.V. (“Monex”). The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. All entities in the “Monex” group of companies are regulated for different products and services within the jurisdictions in which they operate. Details of the different entities can be found here. Details of the respective entities’ regulated status and available products and services can then be found on the relevant links to the individual jurisdictions’ website.