The poor fundamentals coming out of the US were a surprise for sure but what is interesting is that the dollar didn’t sell off to anywhere near the levels we were predicting. Whether this is a delayed response or not is hard to say. Fed fund futures were implying a 30-35% chance of a rate increase by year end so clearly many participants haven’t ruled it out completely. Even so this is still a drop of around 10% on last month (on last checking).
The US isn’t the only economy that’s dipped with the latest reports showing that Europe and the UK are also entering a slowdown. Service growth is displaying particular weakness and inflation in the eurozone has also gone into reverse, which together doesn’t make for a positive outlook.
So EUR and GBP have their own problems and I don’t see them outperforming much on a relative basis unless we see some big divergence in the data. That said we’ve seen GBP/USD turn up this morning with more determination, this capping a bear run over the past couple of weeks.