Investors continue to flee to safe-harbor assets like U.S. Treasurys, the dollar and yen as they digest disappointing global economic data, raising fears of a worldwide slowdown. Data Friday showed China's gross domestic product rose by 7.6% in the second quarter from a year earlier, the slowest rate of growth since early 2009. Earlier this month, a key U.S. jobs report failed to meet expectations.
Such concerns will lead investors to pay close attention next week to earnings reports and major central banks like the Fed. Multinational corporations' second-quarter earnings will provide guidance on the health of the global economy and demand.
Analysts broadly expect the recent bout of dollar strength to continue and the euro to remain under pressure next week. The euro has fallen more than 3% against the dollar so far this month, hitting a fresh two-year low against the dollar Friday at $1.2162.
Investors have grown increasingly skeptical over Europe's ability to implement measures agreed upon at a June European Union summit, such as a European banking supervisor and expanded use of bailout funds. Meanwhile, the U.S. Federal Reserve has held off from signaling further rounds of bond-buying known as quantitative easing, measures that weakened the dollar in the past. Minutes from the latest Fed rate-setting meeting released Wednesday showed policy makers are still divided over whether to implement further economic stimulus.
Investors will be looking to Fed Chairman Ben Bernanke's congressional testimony on July 17 and 18 to divine the chances of future Fed action. Without any signals that the Fed will indulge market hopes for more accommodative policies, the dollar will likely continue to grind higher, analysts say.
"What we're seeing here is most major central banks globally are biased toward some form of easing, while it looks like the Fed is going keep its powder dry for now, Several European countries hold bond auctions next week, and markets will monitor whether investors demand higher yields to buy Spanish debt. Spain will issue bills on July 17 and bonds on July 19. France also holds bond auctions next week.
Better-than-expected results could improve sentiment toward the beleaguered euro-area economies, but overall analysts expect the currency to slide further in the near term, potentially as low as $1.2020 to $1.2050 against the dollar.
There is no reason to buy euro at the moment, However, analysts warn that since most investors have on anti-euro bets, any positive headlines on earnings or euro-zone developments could trigger kneejerk gains for the common currency.
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