Dollar gains on upbeat GDP data, sterling hits fresh 27 months lows on continued no-deal Brexit fear

Market Review - 28/07/2019  02:42GMT  

Dollar gains on upbeat GDP data, sterling hits fresh 27 months lows on continued no-deal Brexit fear

The greenback ended broadly higher on Friday due to the release of better-than-expected U.S. GDP data ahead of next week's FOMC meeting where a quarter-point Fed rate cut is widely expected. Sterling remained under pressure and dropped to a fresh 27-month low in New York on continued no-deal Brexit concern as well as usd's strength.  
  
Reuters reported U.S. economic growth slowed less than expected in the second quarter as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build, which could further allay concerns about the economy's health.  But the fairly upbeat report from the Commerce Department on Friday had some red flags for the 10-year-old economic expansion, the longest on record. Business investment contracted for the first time in more than three years and housing declined for a sixth straight quarter.    
Gross domestic product increased at a 2.1% annualized rate in the second quarter, stepping down from an unrevised 3.1% pace in the January-March period. Economists polled by Reuters had forecast GDP increasing at a 1.8% rate in the second quarter. They estimate the speed at which the economy can grow over a long period without igniting inflation at between 1.7% and 2.0%.  
  
Versus the Japanese yen, although dollar initially retreated from 108.73 at Asian open to 108.57 on weakness in the Nikkei 225, price erased its losses and later jumped to a fresh 2-week high at 108.83 at New York open on upbeat U.S. GDP data before trading broadly sideways.  
  
The single currency moved sideways in Asia and fell from 1.1150 to 1.1133 in European morning. Despite rebounding to 1.1146, renewed selling emerged and knocked price down to session lows at 1.1113 in New York on usd's broad-based strength as well as selling in sterling. Price last traded at 1.1125 near the close.  
  
The British pound remained on the abck foot and fell from 1.2459 at Asian open to 1.2424 in European morning. Despite recovering to 1.2445, cable tumbled to a fresh 27-month low at 1.2378 in New York morning on continued usd's strength together with growing market fear of no-deal Brexit.    
Reuters reported British Prime Minister Boris Johnson told German Chancellor Angela Merkel on Friday that the only way to reach a deal on Brexit is to abolish the so-called Irish backstop, a spokesman for Johnson said in a statement.   
"He reiterated the message he delivered in the House of Commons yesterday: Parliament has rejected the Withdrawal Agreement three times and so the UK must fully prepare for the alternative – which is to leave without a deal on October 31," the spokesman said in a statement.   "He said the only solution that would allow us to make progress on a deal is to abolish the backstop. The PM and Chancellor agreed to stay in contact."   
  
In other news, Reuters reported Ireland's foreign minister, Simon Coveney, said new British Prime Minister Boris Johnson's approach to Brexit talks was "very unhelpful" and would not lead to an agreement.     
Johnson told Britain's parliament on Thursday that he did not want to retain the so-called post-Brexit 'backstop' that would preserve an open border between Ireland and the British province of Northern Ireland in the event of longer-term trade talks collapsing.   
  
Data to be released next week :  
  
Japan retail sales, UK nationwide house price, Italy PPI, and U.S. Dallas Fed manufacturing business index on Monday.  
  
New Zealand building permits, Japan unemployment rate, industrial output, Bank of Japan interest rate, France GDP, consumer spending, budget balance, Germany GfK consumer sentient, CPI, HICP, Swiss KOF indicator, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer confidence and U.S. personal income, personal spending, core PCE price index, PCE price index, redbook, CS home price, consumer confidence, pending home sales on Tuesday.  
  
UK GfK consumer confidence, GDP, unemployment rate, China NBS manufacturing PMI, NBS non-manufacturing PMI, New Zealand NBNZ business outlook, NBNZ own activity, Australia CPI, Japan consumer confidence, Germany retail sales, unemployment change, unemployment rate, France CPI, Italy unemployment rate, CPI, GDP, Swiss investor sentiment, EU HICP, core HICP, Canada GDP, producer price, and U.S. MBA mortgage applications, ADP employment change, employment wages, employment costs, Chicago PMI, Fed interest rate decision on Wednesday.  
  
Australia AIG manufacturing index, export prices, import prices, Japan Nikkei manufacturing PMI, consumer confidence index, China Caixin manufacturing PMI, Swiss manufacturing PMI, Italy Markit manufacturing PMI, France Markit manufacturing PMI, Germany Markit manufacturing PMI, EU Markit manufacturing PMI, UK Markit manufacturing PMI, BoE MPC vote hike, BoE MPC vote unchanged, BoE MPC vote cut, BoE interest rate decision, BoE QE total, BoE QE corporate bond purchases, U.S. initial jobless claims, Markit manufacturing PMI, construction spending, ISM manufacturing PMI and Canada Markit manufacturing PMI on Thursday.  
  
Australia PPI, retail sales, Swiss CPI, Italy industrial output, retail sales, UK Markit construction PMI, EU PPI, retail sales, U.S. non-farm payrolls, private payrolls, unemployment rate, average earnings, goods trade balance, ISM New York index, factory orders, durables ex-deference, durable goods, durables ex-transport, University of Michigan sentiment and Canada trade balance, export, import on Friday.