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The U.S. dollar dropped to the lowest level since October 2016 versus a basket of the other major currencies on Friday after downbeat inflation and retail sales data. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies plunged by nearly 0.7 percent to 94.9 late Friday, its lowest trough since October 5.
The U.S. Bureau of Labor Statistics on Friday reported that the consumer price index was unchanged in June. Analysts had expected for a rise of 0.1%. On a yearly basis, the rate of inflation slowed to 1.6% in June (the smallest gain since October 2016) from 1.9% in the prior month. Data on retail sales were also reported to unexpectedly fall 0.2% last month following a decline of 0.3 percent in May.
The greenback had already been under pressure after the Federal Reserve’s Chair Janet Yellen’s semiannual appearance before Congress on Wednesday. Yellen expressed confidence in the U.S. economy but also signaled that monetary tightening won’t be more than gradual given low inflation growth. Yellen’s comments echoed her colleague – Federal Reserve Governor Lael Brainard’s view.
Brainard on Tuesday said she wanted to “monitor inflation developments carefully” and that the Fed’s current policy rate was not far from its neutral level. The Fed official claimed that further increases in the federal funds rate should be considered cautiously in order not to restrain inflation growth. According to data from futures markets, traders are pricing in around a 40% chance of a rate hike by the end of the year.
In the week ahead, the Commerce Department is scheduled to publish a report on housing starts and building permits for June on Wednesday, which are expected to show a rise of 3.0% to 1.200 million last month for permits rose 3.0% to 1.200 million last month, and a gain of 5.8% to 1.150 million for housing starts. Reports on manufacturing conditions in the Philadelphia and New York regions as well as weekly jobless claims will also be on the calendar next week.
The second-quarter earnings season will continue next week with reports from blue chips such as Johnson & Johnson, American Express, Goldman Sachs,, Microsoft and General Electric.
Turning to the euro, the single currency jumped more than 0.6 percent to trade at 1.1469, closing near the 14-month high of 1.1488 set on Wednesday. Next week, the European Central Bank’s latest interest rate decision is due on Thursday. Although the ECB is not is expected to change monetary policy, investors will still focus on President Mario Draghi’s press conference after the interest rate announcement for fresh clues on the future path of the region’s massive stimulus program.
The Bank of Japan is also not expected to make any changes to its monetary policy at the conclusion of its two-day rate review on Thursday. The Japanese Yen gained 0.65% versus the dollar to trade at 112.53 late Friday. The currency paired losses after falling to a two-week low of 112.28 earlier. BOJ Governor Haruhiko Kuroda will hold a press conference after the monetary policy meeting to discuss the decision.
Besides the BOJ’s meeting, investors will be focusing on monthly trade data scheduled to come out on Thursday, which could show Japanese exports rising for a seventh consecutive month in June.
Sterling was also higher versus the dollar on Friday. The pair GBP/USD soared sharply 1.24% to close at 1.3099 after hitting 1.3114 earlier – the pair’s highest since September, 2016. In the week ahead, the U.K. Office for National Statistics will release data on consumer price inflation for June on Tuesday. Analysts expect consumer prices to rise 2.9%. If confirmed, that would be the highest level in nearly four years.
Besides the inflation report, the ONS will also publish data on June retail sales on Thursday, which is anticipated to increase at the pace of 0.3% last month following a decline of 1.2% in May.
In Asia, China is scheduled to release data on second quarter gross domestic product on Monday. The report is expected to point to a growth rate of 6.8% in the three months ended June 30. Data to assess the world’s second largest economy’s health also conclude readings on June industrial production, fixed asset investment and retail sales which will also be published on Monday.