As U.S. data painted a contrasting image of the American economy on Thursday, the dollar climbed and was on course to increase monthly by 1.69% against a basket of currencies, while the euro was hurt by cautious remarks made by a prominent European Central Bank hawk. With a 0.8% gain in July, U.S. consumer spending …
As U.S. data painted a contrasting image of the American economy on Thursday, the dollar climbed and was on course to increase monthly by 1.69% against a basket of currencies, while the euro was hurt by cautious remarks made by a prominent European Central Bank hawk. With a 0.8% gain in July, U.S. consumer spending climbed for the first time in six months, but sluggish inflation raised expectations that the Federal Reserve would leave interest rates constant the following month.
The personal consumption expenditures (PCE) price index increased 0.2% in July, keeping pace with June’s increase. It comes as a series of reports this week, including a decline in job vacancies to their lowest level in almost 2-1/2 years in July, stoked concerns that the economy is stalling. Joe Manimbo, senior market analyst at Convera in Washington, said, “The dollar is faring well as today’s data suggests America’s economic glass remains half full.” The dollar index last increased 0.48%, reaching 103.59. The previous Friday, when it was at its highest since June 1, it was 104.44. According to the CME Group’s FedWatch Tool, traders of Fed funds futures predict an 89% chance that the U.S. central bank will keep rates steady at its September meeting and a 45% chance of a raise in November. According to Raphael Bostic, president of the Atlanta Fed, monetary policy is already sufficiently strict to bring inflation back down to 2% over a “reasonable” time frame. For further evidence that the labor market is deteriorating, Friday’s jobs report for August will be carefully scrutinized. According to the economists surveyed by Reuters, 170,000 new positions were added by employers throughout the month, which is what the report is expected to reflect. Initial claims for state unemployment benefits decreased by 4,000 to 228,000 for the week ended August 26 according to data released on Thursday.
The euro declined on Thursday after ECB rate-setter Isabel Schnabel, who is regarded as one of the bank’s most hawkish members, said that although euro zone growth was weaker than anticipated, it did not necessarily mean that further rate increases were not necessary. According to Michael Brown, analyst at Trader X, “we’ve heard the most powerful hawk on the Governing Council take on a much more cautious tone.” “I believe she is putting some downward pressure on the euro because she is highlighting downside risks to growth.” Data released on Thursday indicated that while inflation in the Euro zone remained stable this month, underlying price growth decreased as predicted. This contradictory image makes it difficult for the ECB to decide whether to stop raising interest rates in the face of growth that is clearly slowing down.
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