At the end of last week, after the higher industrial production, the American currency gained. As a result, the US dollar recovered some of the losses that have occurred with the growing odds for FED to cut interest rates this week.
Today, the US currency seems to weaken, giving off some of the Friday's strengthening after the record drop in the New York Empire State index. This index is published by the Federal Reserve in New York. It is based on a survey conducted among the most important presidents of companies in the manufacturing sector in the state of New York. In the survey, the respondents express their opinion on what has changed in their companies last month and how they assess the outlook for the next six months. Reading below 0 points means worsening economic conditions, and above improving.
The New York Empire State Manufacturing Index in June was -8.6 points, which is the lowest since May 2016. What's more, the index fell from 17.8 points, which means the highest value of the decline in history. The slump was mainly caused by declines in both new orders and employment. Looking at the results of the survey on business perspectives, the indexes evaluating the six-month perspective indicated that companies were less optimistic about future conditions than last month, as there was a drop to 25.7 pts. against 30.6 pts.
As a result, the dollar has fallen. The EUR/USD has increased from today's low by 30 pips. In turn, the GBP/USD is trying to create a double bottom pattern, as the 1.2564 level is defended for the second time. The increase in GBP/USD from today's low also amounted to around 30 pips. Meanwhile, the odds for Wednesday's interest rate cut by the FED are around 20 percent. In July, the interest rate market assumes odds for a cut of around 84 percent.
It is worth remembering that today starts the central banking forum in Sintra, Portugal, where Mario Draghi will also have his speech. The President of the European Central Bank may affect the EUR exchange rate with his comments, while the FED may influence the dollar exchange rate on Wednesday.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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