Risk sentiment improved notably on Wednesday as geopolitical risks ebbed, helping the US dollar extend its gains into the European session. The euro was the worst performing major currency as the three-day sharp rally ran out of steam. The commodity-driven Canadian, Australian and New Zealand dollars also came under pressure against the resurgent dollar but the pound was a surprise outperformer.
The euro was unable to hold on to the $1.20 handle after rising above the level yesterday for the first time since January 2015. Stronger-than-expected Eurozone business survey data was unable to lift the euro, which stood 0.4% lower at $1.1923 in late session. It was down a similar amount against the pound at 0.9227, but was flat versus the yen at 131.41.
The European Commission’s economic sentiment index beat expectations of 111.3 to rise to 111.9 in August (the highest since 2007) from 111.3 in July. The business climate index also came in above forecasts, rising to 1.09 from the prior 1.04.
The pound benefited from the weakness in euro/pound with cable holding above 1.29 for most of the day. Sterling was up the most against the Canadian and New Zealand dollars, as well as the yen. There was little reaction to Bank of England data showing UK consumer lending expanded at the slowest rate in a year in July, adding to concerns of weakening consumer spending. The pound was last trading flat on the day at $1.2919.
The greenback’s overnight rebound gathered momentum at the start of US trading today on the back of upbeat US data. The ADP employment report, seen as a good indication for the official nonfarm payrolls report due on Friday, showed a surprise jump in private-sector jobs of 237k in August. This was the biggest increase in five months and was well above forecasts of 183k and higher than July’s upwardly revised 201k.
Further boosting the dollar was the second estimate of GDP growth for the second quarter. Annualized growth in the three months to June was revised up from 2.6% to 3.0%, beating forecasts of 2.7%. US consumer spending rose more strongly than initially estimated but there was no revision to the core PCE price index, which was left unchanged at 0.9% in the second quarter.
The dollar hit a two-week high of 110.43 yen immediately after the data, while the dollar index rose to 92.87, which was a three-day high. A tweet by US President Trump created a brief panic that drove the dollar down to just above the 110 level, before recovering to around 110.20 yen. Trump tweeted "talking is not the answer". However, it was unclear if the President was talking about military action as some reports suggested he may have been referring to US efforts to impose an oil embargo on North Korea.
The Australian dollar could not keep its Asian session gains as the greenback’s rebound pushed the aussie lower to $0.7911. The New Zealand dollar fell even more steeply to trade around $0.7210, following another exchange rate warning by RBNZ Governor Graeme Wheeler earlier in the day.
Gold prices were steadier today after coming off 9½-month highs on Tuesday. The precious metal was marginally higher on the day at $1309.50.
Oil prices fell on Wednesday despite another drop in crude stocks in the latest weekly inventory numbers from the US Energy Information Administration. US oil stocks fell by a bigger-than-expected 5.39 million barrels last week versus forecasts of a drawdown of 1.91 million. Gasoline stocks rose unexpectedly but the trend will likely reverse next week for both crude and gasoline stocks as the impact of Tropical Storm Harvey starts to affect inventory levels.
WTI crude was down 1.3% at $45.84 a barrel, while Brent crude declined by 1.4% to $51.29.
The inventory data weighed on the Canadian dollar which fell 0.7% against its US counterpart. A smaller-than-forecast current account deficit for Canada in the second quarter provided little support. Dollar/loonie recovered sharply from yesterday’s 4-week lows to reclaim the 1.26 level in late European trading today.
