Dollar Slows Slide; Record Low U.S. GDP Reported

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Dollar Slows Slide; Record Low U.S. GDP Reported

The U.S. dollar took a break from its losing streak overnight as risk sentiment around the globe slumped and gave the greenback some relief.

Overview

The dollar has spent most of the week on its backfoot and continued to lose yesterday after the Federal Reserve maintained its dovish stance.  While the Fed did not increase its monetary easing or change its forward guidance, the central bank continued to harp on the fact that the economy’s outlook is highly dependent on getting the coronavirus under control.

This morning’s data showed that the U.S. economy contracted the most on record in the second quarter of 2020.  The 32.9% drop was not as bad as the 34.5% expectation.  The previous record drop was 10% in 1958.  Personal consumption also fell at a record rate of 34.6% in the second quarter.

A separate report confirmed the labor market remains historically awful.  Weekly jobless claims registered at 1.434M last week, up from 1.422M last week.  This is the second consecutive increase as last week’s print was the first increase since March.  Continuing claims registered over 17M, worse than economist estimates and breaks an 8-week streak of improving numbers.

Expect some volatility after hours today as several Tech giants will release earnings after the bell and may affect the risk environment overnight.  Apple, Alphabet, Facebook and Amazon will all release earnings after the bell.

What to Watch Today…

  • Major tech earnings after the bell

Complete Economic Calendar can be found here.

EUR

The Euro is still trading close to a 22-month high versus the greenback but the common currency’s momentum was slowed on renewed COVID fears and as data showed a record slump for the German economy.  Indeed, Europe’s largest economy shrank 10.1% in the second quarter.  Adding insult to injury, Germany also reported a spike in new Covid-19 cases.  Spain, France, and Italy will report GDP numbers tomorrow and are expected to fare considerably worse than Germany.

All was not doom and gloom, however.  A separate report showed that confidence in the euro-area outlook rose more than expected.  While the 82.3 reading in the European Commissions indicator was an uptick, its still more than 20 points below February’s level.

GBP

The British pound is hanging tough against the U.S. dollar even as the greenback finds modest relief against other trading partners.  The sterling has gained for nine-straight days and remains elevated this morning despite a lack of fundamental data to credit.  The U.K. and Japan are reportedly close to agreeing to a post-Brexit trade deal to replace its free-trade agreement as a member of the E.U.  If the deal goes through, the U.K. will avoid new tariffs next year.

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