Durable Goods Help Dollar; Waiting on Yellen

USD

The U.S. Dollar traded in mostly softer overnight, but regained some of its recent losses against the British pound.  However, the greenback has remained in familiar ranges against the majority of its rivals this month on low, summer volatility.  The exception would be the South African rand, which is now 4.0% lower this week.

The Kansas City Fed’s annual conference in Jackson Hole, WY begins later today, but the headliner will be Fed Chair Janet Yellen’s speech tomorrow. The address is titled “The Federal Reserve’s Monetary Policy Toolkit” so traders obviously see it as a great opportunity to get a sense of where the Fed head sees the future of monetary policy.  Futures show about a 53% chance the central bank will hike interest rates again this year.  Tempus believes additional hikes will not come until 2017, but we too will be monitoring Yellen’s speech closely.

This morning’s economic data may breathe some additional life into the greenback.  Orders for capital equipment climbed in July for a second month, advancing the most since January.  Bookings excluding volatile transportation climbed 1.5%, beating expectations for a gain of only 0.4%.  The headline reading showed that all orders for goods meant to last at least three years gained 4.4% versus expectations of a 3.4% reading.

EUR

The Euro has ticked higher against the U.S. dollar overnight, retracing some of its losses from earlier in the week.  The economic docket was generally underwhelming but the common currency appears to be benefiting from traders hedging their bets before tomorrow’s speech by Janet Yellen.

Both components of the German IFO Business Climate index declined showing that current conditions and future expectations for the largest economy in Europe are not ripe for economic advancement.  However, recent GDP data shows that Germany is on course for another quarter of economic growth.

A separate report showed that the Spanish economy continues to expand.  The 2nd Quarter GDP reading was revised up to 0.8% quarter of quarter from 0.7%.

GBP

The British pound traded slightly lower overnight, breaking three days of gains against the U.S. dollar.  The sterling has enjoyed a long run of better-than-expected data.  However, the currency has been able to break key technical barriers showing the recent run may lack conviction and may be quick to reverse.

We see the potential for downside GBP risk in the coming months as negotiations on how the United Kingdom will exit the European Union pick up.  Economic and political uncertainty should see the sterling revert of ranges see earlier this month.  The sterling is 11% lower against the U.S. dollar since late June.