Risk sentiment was on the soft side as markets began to turn their focus on upcoming key events week, beginning with this weekend’s Jackson Hole Symposium of central bankers, next week’s ECB meeting and the all important US non-farm payrolls report.
The main data point in the European session was the second estimate for UK Q2 GDP. This time around, the reading was left unrevised at 0.7% on the quarter. The pound only briefly rose on the data before resuming its downtrend against the dollar, falling from a session high of 1.5435 to 1.5344. Near term risk lies with Bank of England Governor Mark Carney’s appearance at Jackson Hole on Saturday. All eyes will be on him to see if he makes any mention of the Bank’s monetary policy and the sterling’s strong exchange rate.
The euro had a minimal reaction to preliminary German CPI for August. Month-on-month CPI printed at 0.0%, which was contrary to expectations of a 0.1% drop from July’s 0.2% rise. Focus will be on next week’s ECB policy meeting and Mario Draghi’s press conference. The was softer against the dollar to drift down to 1.1228 from a session high of 1.1309.
Other news from Europe today includes the swearing in of a caretaker government in Greece, following Greek Prime Minister Alexis Tsipras’ surprise resignation last week. Elections have been scheduled for September 20. Political uncertainty in the country may make the euro vulnerable ahead of the election date.
Important data came out of the US today, which induced personal income and spending and the PCE price index. The dollar was buoyed against the yen by the personal spending number after being mostly rangebound between 120.64 and 120.93 during European trading it rose to test the key 121.00 level.
Spending rose 0.3% in July while income was up 0.4%. The headline PCE price index rose 0.1% from the prior month and was up 0.3% from a year earlier. The core price measure, which excludes food and fuel, also rose 0.1% from the prior month and was up 1.2% from July 2014, the smallest year-to-year gain in four years. It is evident that inflation hasn’t reached the Fed’s 2% target. Meanwhile, the University of Michigan consumer confidence index for the August final reading came in at 91.9 versus the 93.1 estimate and below the prior 92.9 reading.
Focus now turns to the Jackson Hole Symposium that has already gotten underway.