Over the past week, the dollar remained virtually unchanged. Its weakening against the euro and its strengthening against the pound was more of a superficial nature. And the reason lies solely in American data.
First, the dollar made an attempt to rise against the backdrop of a significant increase in the number of open vacancies from 5.702 million to 6.163 million. In the United States, the proportion of the able-bodied population in the total population has been growing for two months. And if along with it the number of job openings grows, then the situation on the labor market should remain stable. And it's currently at a pretty good state. However, the inflation data returned to its starting point. The first bell came after the release of data on producer prices, whose growth rates slowed from 2.0% to 1.9%. And the next day, fears became a reality, as inflation slowed from 1.9% to 1.7%. Inflation in the US has been slowing for four months in a row, and this greatly reduces the likelihood of an increase in the interest rate in September. If this trend continues until the end of the year, the Fed may not raise the rate one more time.
The pound, unlike the single-market European currency, has lost some of its positions, which was connected with the statement of the British government about the refusal to pay 40 billion euros for withdrawing from the EU. After such statements, there is almost no doubt that the negotiations will be tough and the EU countries will seek extremely unfavorable trading conditions for Britain. In this regard, the importance of the state of the trade balance of the UK is increasing, and its deficit for June was at 4.6 billion pounds. But in May, it was £2.5 billion. Thus, the trade balance deficit is growing at a rather rapid pace. Since the beginning of the year, the trade balance deficit has already reached 23.5 billion pounds.
The data on industrial production in Europe has been published, the growth rate of which has slowed from 4.0% to 2.8%, which is hardly positive news. Also in Europe, there is data on inflation, the growth rate of which can remain the same. The ECB has not previously been determined to tighten monetary policy, and the stabilization of inflation at 1.3% is unlikely to change anything.
But in the UK, inflation is expected to increase from 2.6% to 2.7%. Thus, the slowdown in inflation is of a short-term nature and will strengthen the positions of supporters of hiking the interest rate in the Bank of England. Also, the unemployment rate should remain the same. In general, the expectations are quite positive, and the only thing that can weaken the pound's position is the slowdown in retail sales growth from 2.9% to 1.4%. The decline is expected to be quite deep, and inflation will not compensate for its growth.
In the US, retail sales' growth rate is expected to accelerate from 2.8% to 3.0%, which offsets the slowdown in inflation. Also, industrial production should accelerate from 2.0% to 2.1%. But, despite such optimistic forecasts, the main event of the week will be the publication of the minutes of the last meeting of the Federal Open Market Committee. Investors are waiting for confirmation that in September the Fed will raise the interest rate. However, it is anticipated that there will be no direct answers, and rather it is expected to show an expression of fears about the continued slowdown in inflation. In this regard, the chances of a rate increase in September are vague, and the move may be postponed to a later date.
Against the backdrop of fairly weak expectations for statistical data on Europe, as well as the possible content of the text of the Fed's minutes, there will not be any significant changes in the market for the week. Although at the beginning of the week the dollar may strengthen, but after the publication of the minutes , everything will return to its respective place.
At the beginning of the week, the euro/dollar pair will decline to 1.1700, and by the end of the week it will return to the level of 1.1800.
The pound/dollar pair is waiting for a similar picture, with a drop to 1.2850, followed by a return to 1.2900.
