The Chinese GDP data was broadly in line with expectations on Monday with a second-quarter slowdown to 7.5% from 7.7%. Markets had been braced for an even weaker outcome which lessened the impact on release as risk conditions held broadly steady. There were still important reservations surrounding the economy’s performance and suspicions that this was not being captured in the GDP data.
Following its plunge on Friday, the Australian dollar was able to resist a further selling pressure and AUD/USD corrected back to the 0.91 area before selling pressure resumed.
The dollar maintained a generally firmer tone ahead of the US open on expectations that last week’s sell-off had been overdone. There was also a small increase in US yields which help boost the dollar as it moved higher, especially against the yen. USD/JPY moved to highs near 100.50 ahead of the US data release.
There were also important political reservations surrounding the Euro-zone which hampered the Euro. There were further concerns surrounding the Portuguese political situation and there were also concerns surrounding the situation in Spain with Prime Minister Rajoy under renewed pressure to resign over alleged unauthorised payments. EUR/USD dipped significantly weaker with another test of the important 1.30 level.
The US retail sales data was significantly worse than expected as headline sales increased by 0.4% for June compared with expectations of a 0.7% gain while core sales were unchanged compared with an expected 0.5% gain. There was a more positive New York PMI index with an increase to a five-month high of 9.5 from 7.8 previously which triggered some optimism surrounding the manufacturing sector. The net impact, however, was for a weaker US currency following the release.
With markets focussed strongly on US monetary policy and the potential for a tapering of bond purchases, the weaker data increased speculation that the Fed would stay in a more dovish frame of mind. In this environment, EUR/USD rallied back towards the 1.3050 area and USD/JPY also lost its grip on the 100 level.
The UK housing data maintained its strong run with Rightmove reporting a 0.3% monthly increase in prices which was the seventh successive gain with an annual increase close to 5%. Sterling was unable to derive any significant support from the data, especially with expectations that the Bank of England would maintain a very loose monetary policy. GBP/USD was initially unable to hold above 1.51 and dipped to lows around 1.5030 before reversing as it gained relief from a generally weaker US currency.