Dollar sell-off seems unstoppable, data, stimulus talks, end-of-month flows in play


Here is what you need to know on Friday, July 31:

The US dollar has been extending its sell-off, falling to multi-month or multi-year lows against major currencies. Historically low GDP, the Fed’s readiness to do more, uncertainty about fiscal stimulus, and another rise COVID-19 deaths are in play. Additional US figures and end-of-month flows are eyed.

EUR/USD has flirted with 1.19 – the highest since June 2018 – GBP/USD is above 1.31, USD/JPY closer to 104, AUD/USD tops 0.72, and NZD/USD is above 0.67. The Canadian dollar is lagging with USD/CAD trading above 1.34 as oil prices are on the back foot. 

The greenback’s decline goes hand-in-hand with bond-yields. Benchmark ten-year treasury yields are at around 0.52%, close to the May trough. Gold is edging up once again, trading around $1,970. 

US data: Gross Domestic Product plunged by 32.9% annualized in the second quarter. While it beat estimates, the historic fall weighed on the dollar. GDP was compounded by a worrying increase in continuing claims to above 17 million in the week ending July 17.

US GDP Analysis: Could have been worse, but will not improve, winners and losers in markets

Personal spending and personal income for June and the University of Michigan’s final consumer sentiment figures for July are all lined up on Friday.

See Personal Income, Spending, and Prices June Preview: After all the agony just an average quarter?

US coronavirus cases have stabilized just under 70,000 while the daily death tolls continue rising, with the seven-day rolling average topping 1,200.

President Donald Trump floated the idea of postponing the elections due to the virus – seemingly in an attempt to divert attention from the GDP data – and triggered a backlash from rivals and from his own party.

Fiscal relief: Several programs including the $600/week federal top-up for the unemployed expire on Friday and lawmakers have yet to strike an agreement on the next steps. However, some of the participants are reporting progress in talks that are set to continue over the weekend. 

Monetary support: Markets continue responding to the Federal Reserve’s relatively downbeat message, committing to do more and acknowledging the deterioration in the economy. 

EUR/USD’s rise comes despite worse-than-expected German GDP – falling 10.1% in the second quarter. The French economy squeezed by 13.8% at the same time, better than estimated. Preliminary inflation figures from the old continent will likely remain depressed, with the headline hovering around 0% and core prices below 1%. 

GBP/USD’s surge comes despite the British government’s surprising new restrictions in northwest England encompassing around 4.3 million people. 

AUD/USD is also benefiting from the relatively robust Chinese Manufacturing Purchasing Managers’ Index, which advanced to 51.1 points.

WTI oil prices dipped below $40 on Thursday but have recaptured the round level, weighing on the loonie. Canada publishes GDP figures for May, which are projected to show a rebound after crashing by 11.6% in April. 

Cryptocurrencies have been consolidating their gains, with Bitcoin hovering around $11,000.

End-of-month flows may trigger more volatility than normal given the dollar’s decline in recent weeks and especially in the past few days. Trading around 15:00 GMT could be considerably choppy. 

More Where next for the dollar, stocks and the US economy after downbeat data and the Fed



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