Dollar steps back


Housing starts and building permits are not normally the stuff of legend. Yesterday's numbers, however, highlighted problems in the construction sector. Permits were at a two-year low and starts were down by 0.9% as a rebound in the construction of single-family housing units was offset by a plunge in multi-family homebuilding. "The sector is being hamstrung by land and labor shortages and a result, the housing market continues to struggle with tight inventory, leading to sluggish sales growth."

The Federal Reserve's Beige Book reported continued "modest" expansion in economic activity and "modest" growth in employment. In the Boston district, "tariffs and trade policy uncertainty were major issues for manufacturers and in Philadelphia "trade uncertainty further delayed business investment". None of the day's news was actively destructive to the USD but neither did it energize buyers.



The euro zone failed to make an appearance in this morning's round of economic data and will have little to say for itself tomorrow either.  

The absence of Euroland statistics did the EUR no harm. It sent Wednesday moving gently higher and held onto its gains overnight. The euro is 0.3% higher on the day.


Oil prices played less of a part in the Loonie's fortunes than the economic data. The takeaway for investors was that the Canadian economy is "bouncing back after a soft winter" and "inflation pressures are still right around 2%”. The consumer price index figures appeared to confirm that view. Even though core inflation at 2.0% was lower than analysts had predicted, the headline reading, also 2%, was in line with forecasts. 

It was the same story for manufacturing shipments:  The 1.6% monthly increase was less than the forecast 2.0% rise but it was a marked improvement on the previous month's 0.4% decline. Although WTI crude was 2.3% lower on the day, the CAD was unchanged against the USD.


If investors might have been unimpressed by Tuesday's employment data and Wednesday's inflation figures, they sat up and took notice of this morning's retail sales numbers for June. Analysts had predicted a monthly decline of 0.3% following a 0.6% fall in May. Instead they saw sales jumping 1.0% on the month. Compared with June last year sales were up by 3.8%. "The figures clashed with a British Retail Consortium survey that showed sales fell in the year to June at the fastest pace on record for that month." The data changed what would have been an ordinary day into a good one, and the GBP is 0.6% higher against the USD.

On the Brexit front, the House of Lords completed another obstacle to any attempt to prorogue Parliament. It gave its backing to a bill already approved by the House of Commons, which obliges the government to make a series of statements about the Northern Ireland Assembly. 


The USD returned to the middle of the ¥107-¥109 range that has contained it since the end of May. It was USD weakness rather than JPY strength that drove the move. On the day the yen is 0.5% firmer against the USD.

Trade data for June released overnight were to an extent positive for the JPY. June's ¥14.4 billion deficit was better than expected and a big improvement on the previous month's ¥609.1 billion shortfall. However, the numbers provided an ominous reminder of how the trade war is damaging global trade: imports were down by 5.2% from the same month last year and exports were 6.7% lower.

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