Data released overnight showed that China’s economic recovery lost some momentum last quarter, putting the nation’s annual growth target at risk and fueling concerns about the slowdown in the world economy. GDP grew at a softer rate than expected at 6.3% in Q2 compared with a year earlier when many parts of the country remained in lockdown. Deflation remains a major concern with prices declining for the first time since 2009, intensifying calls for further stimulus to support the economy. The uncertainty kept the US dollar near its 15-month low as expectations that the Federal Reserve will soon end policy tightening grow ahead of next week’s FOMC meeting.
The greenback remains offered against most of its G10 peers, with both EURUSD and GBPUSD sitting close to recent highs. EURUSD has traded briefly through 1.1260 this morning and cable briefly breached the psychological 1.31 level as European trading started this morning. These moves are triggered by dollar weakness rather than strength in the pound and single currency and markets will look for further clues on the strength of the US economy as we await the release of June Retail Sales data this afternoon.
Elsewhere, the Reserve Bank of Australia released the minutes of its July 4 meeting this morning, where policymakers decided to keep interest rates unchanged. Officials said that the decision to pause was the “stronger one” amid concerns that the 4% of cumulative hikes over the last year are already beginning to hurt the economy.