Over the past week, the dollar significantly declined against the single European currency, compared with the pound that remained virtually unchanged. Although, the dollar went up initially against the pound. In general, the weakening of the dollar is due exclusively to Friday's performances by Janet Yellen and Mario Draghi in Jackson Hole. The heads of the Fed and the ECB did mention anything about monetary policy. But, declared again about macroeconomic stability and confident economic growth that caused the weakening of the dollar. While the US inflation slows down along with other indicators, except for the labor market. This does not give an opportunity to answer the question about the real state of affairs. Thus, the words of Janet Yellen rather convinced everyone that the refinancing rate will no longer be raised, at least until next year. Nevertheless, the words of Mario Draghi inspire confidence that the ECB will begin a gradual tightening of monetary policy soon since inflation already stabilized and unemployment has declined.
There was no significant data for the week, even those that were, spoke of the extremely unstable state of affairs in the United States. House sales in the primary market fell by 9.4%, and the secondary market fell by 1.3%. Orders for durable goods dropped by 6.8%. These weak figures clearly indicate a strong decline in consumer activity, hence, it is not worthy to talk about the increase of refinancing rate.
There will also be some news scheduled this week, but unlike the previous week, they will be extremely important.The
First, it is worthwhile to focus on preliminary data on European inflation, which should show growth from 1.3% to 1.4%. If the forecasts are confirmed, an increase in pressure on ECB's monetary policy is expected. In the conditions of gradually growing inflation, it is a long-awaited event to outline plans to raise interest rates and stop the quantitative easing program.
Secondly, this is the second estimate of US GDP in the second quarter. And, despite the ambiguous statistics, as well as the extreme caution of the Fed, many expects to see an improvement in the US economy. Nevertheless, considering all of the above, there is a high probability that the data will show an opposing result which will greatly disappoint investors.
The third and most important is the data to be released on the labor market. It is expected that the unemployment rate will remain the same, as well as the average duration of the working week. The average hourly wage can grow by 0.2%, but despite the fact that personal expenses should increase by 0.3%, there is nothing good about this. Employment can increase by 183, 000 against 178, 000 a month earlier. However, even such positive news can be blocked by the new job creation statistics which should be reduced from 209,000 to 180,000.
Thus, the trend towards the weakening of the dollar, which was outlined at the end of last week, has all chances to continue.
By the end of the week, the dollar-euro pair has the potential to rise to 1.2000.
The pound-dollar pair will grow exclusively on US news, ignoring the European news, and the benchmark is 1.3150.