Dollar Whipsaws Amidst Data Deluge

The Dollar whipsawed during the week ended September 1, amidst a slew of economic data releases that triggered a wild swing in rate hike expectations. An unexpected downgrade to the second-quarter U.S. GDP readings, a spike in the Fed-preferred PCE inflation readings and a mixed labor market update that showed brisk job creation as well as rising unemployment caused the greenback’s fortunes to oscillate wildly with the volatility in rate hike expectations.

Over the course of the week spanning August 28 to September 1, the U.S. dollar weakened against the British pound, the Australian Dollar and the Japanese yen but gained ground against the euro.

The U.S. Dollar’s surge against major currencies in the week ended August 25, triggered by the hawkish commentary by Fed Chair Jerome Powell at the Jackson Hole Symposium fizzled as the U.S. GDP downgrade stirred hopes of a less hawkish Fed. Revised estimates of GDP data released on Wednesday showed that the U.S. economy grew at 2.1 percent in the second quarter, versus 2.4 percent indicated in the preliminary estimate. The Dollar Index or DXY, a measure of the Dollar’s relative strength, which had touched the week’s high of 104.36 on Tuesday, dropped to the week’s low of 102.94 on Wednesday.

Data released on Thursday revealed the Fed’s preferred PCE – based inflation readings for July rise on expected lines. As expected, the y-o-y Core PCE Price Index increased by 4.2 percent, versus 4.1 percent in the previous month. The headline annual reading also jumped as expected to 3.3 percent from 3 percent in the previous month.

The U.S. Bureau of Labor Statistics on Friday reported that the U.S. economy added 187 thousand jobs in August, versus the downwardly revised 157 thousand jobs in July and more than market expectations of 170 thousand. The report also revealed that unemployment rate rose to 3.8 percent in August, from 3.5 percent in July, and above market expectations of 3.5 percent.

Amidst the updates to inflation and the labor market, the DXY rebounded to 104.29 on Friday, before closing the week at 104.24, gaining 0.15 percent over the course of the week.

The EUR/USD pair shed 0.25 percent during the week ended September 1, closing at 1.0773, versus 1.08 a week earlier. The week’s trading range was between a high of 1.0947 touched on Wednesday and the low of 1.0771 touched on Friday. The euro’s decline is mainly attributed to weak economic data that curtailed chances of another rate hike.

The GBP/USD pair edged up 0.09 percent during the week spanning August 25 to September 1, rising to 1.2588, from 1.277 a week earlier. The pair ranged between the low of 1.2562 touched on Tuesday and the high of 1.2747 touched on Wednesday. Persistent inflation and rate hike expectations supported the pound’s movements against the greenback.

The Australian Dollar rallied 0.78 percent against the U.S. dollar over the course of the past week. The AUD/USD pair jumped to 0.6450 by September 1, from 0.6400 a week earlier amidst a rise in the CPI indicator. Data released on Tuesday showed the monthly Consumer Price Index indicator increasing by 4.9 percent in the year to July. The pair traded between the low of 0.6400 traded on Monday and Tuesday and the high of 0.6524 touched on Wednesday.

The Japanese yen too gained ground against the U.S. dollar during the week ended September 1. The pair which had finished trading on August 25 at 146.41, dropped to 146.23 by September 1. The pair ranged between the high of 147.38 on Tuesday and the low of 144.44 on Friday amidst data that revealed contraction in manufacturing activity, decline in consumer confidence, decrease in industrial production, drop in housing starts and less-than expected increase in capital spending.

Indications of a weakening in the world economy as evidenced by the decline in PMI readings in China as well as Europe have deepened the risk-off sentiment, lifting the Dollar Index to 104.58 versus 104.24 on Friday. The euro has slipped to $1.0738 whereas the pound has decreased to $1.2567. The AUD/USD pair has declined to 0.6375, amidst a pause by Reserve Bank of Australia. The USD/JPY pair is currently at 147.30, versus 146.23 on Friday.

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