Dollar surprisingly rose on Tuesday despite seeing a weak retail sales report from US. In addition, the statements made by Fed Chairman Jerome Powell were more about the prospects for youth, rather than monetary policy.
Powell said during the virtual town hall meeting that the students who have been forced to cope with the coronavirus outbreak will become an "extraordinary generation" that will have a greater impact on society in the future. With regards to economic growth and risks associated with the Delta variant, he did not make specific comments but noted that the pandemic is still ongoing and casts a shadow on economic activity.
The next Fed meeting is set on August 26-28, and analysts say this will be the most important conference of the central bank as during it the members will have the opportunity to delve into politics and economic prospects.
On the bright side, the Fed chief said the central bank still has powerful tools to influence the economy. He also talked about digital money, which is gaining more and more attention.
Meanwhile in Europe, a report on GDP was released yesterday which indicated that the economy rose 2% in the second quarter, after falling by 0.3% in the first quarter. This is in line with preliminary estimates published last July 30. And compared to last year, GDP grew 13.6% after contracting 1.3% in the previous quarter.
More detailed figures are yet to be released, but many project that the growth rate will be the same in the third quarter. They believe that it will happen despite a continued spread of COVID-19. In fact, the European Commission said the Euro area will grow 4.8% in 2021 and then by 4.5% next year.
Also released yesterday was a report on the number of employees, which gradually rose by 0.5% month-over-month and increased 1.8% year-on-year.
Going back to US, the July data for retail sales was disappointing because the index showed a 1.1% decline after rising 0.7% in June. The majority of the drop was from decreased sales on cars and car parts, which fell 3.9%. So, if we exclude this segment, retail sales is only 0.4% lower.
In any case, the slump is a sign that consumers are choosing to stay at home again and are less willing to spend on unnecessary expenses.
A report on industrial production was also published yesterday, but this time it showed growth, albeit tiny. The index reportedly rose 0.9%, thanks to continued demand for goods and increased investment. Gradual improvement in the supply chain and employment also have a positive impact on the indicator.
Unsurprisingly, mining output also jumped 1.2% in July, while capacity utilization rose to 76.1%.
With regards to EUR / USD, a lot depends on 1.1730 because a rise above it will provoke a much larger jump towards 1.1770 and the 18th figure. Meanwhile, a drop below will lead to a further plunge towards 1.1670 and 1.1630.
GBP
Pound fell on Tuesday despite good labor market reports from UK. Data from the Department of Labor indicated that the unemployment rate fell to 4.7% in the second quarter, while employment increased to 75.1%. And for three months, the average salary, including bonuses, increased by 8.8%. Excluding bonuses, it rose by 7.4%. The number of jobless claims also fell by 7,800 in July.
So, a lot depends on 1.3730 because rising above it will open a potential for a new bullish trend. And if GBP/USD manages to jump beyond 1.3765, price will hit the base of the 38th figure, and then 1.3840. But if the pair drops below 1.3730, price will collapse to 1.3690, and then to 1.3630.