1. FX Outlook
  2. Daily FX Report


German consumer confidence declined to –25.4 for July from –24.4 previously and weaker than consensus forecasts of –23.0.

There are still dovish voices within the ECB as council member Centano, for example, stated that over-hiking is not an acceptable position. He added that the economy is already taking a hit while inflation is easing as quickly as it went up.

Fellow council member Muller stated that the bank needs to look at the data for a rate hike beyond July while Vujcic stated that there was a good case for a hike in September. At this stage, the hawkish voices maintained a dominant position with strong expectations of a July rate hike.

The overall hawkish ECB rhetoric helped underpin the Euro on the main crosses, but rate hikes have been priced in and it was unable to make any headway against the dollar. Wider US currency gains pushed the single currency to lows just below 1.0900 before a tentative  correction to near 1.0920.

There was evidence of quarter-end position adjustment which helped underpin the dollar and there will be further position adjustment on Thursday.

Expectations of a tight Fed policy continued to underpin the dollar on Thursday and overall risk conditions remained cautious amid fears that interest rates would have to remain higher for longer. In this environment, the Euro traded just below the 1.0900 level in early Europe.


The US May goods trade balance narrowed to $91.1bn from a revised $97.1bn the previous month and below expectations of $92.9bn. Although there was a small decline in exports, this was more than offset by a sharper decline in imports.

Fed Chair Powell commented that he believes that there is a more restrictive policy coming. He added that data on jobs, activity and inflation have all been strong over the past quarter and policy has not been restrictive for very long. He also stated that labour costs are high in non-housing services and that the Fed needs to see more softening in the labour market to help bring inflation under control.

There was certainly no sign of Powell adopting a more dovish stance on the policy outlook. Following the latest comments, there was a further shift in Fed Funds rate futures with the chances of a July hike seen at close to 85%.

There was little net change in longer-term yields, but hawkish Fed expectations continued to boost the dollar and the US currency posted fresh 7-month highs above 144.50 against the yen before a limited correction.

There were no significant protests against yen weakness during Thursday’s Asian session and, in this environment, yield trends tended to remain dominant. The dollar traded just above 144.50 against the Japanese currency in early Europe with markets still wary over the threat of intervention through the Bank of Japan.


In comments on Wednesday, Bank of England Governor Bailey stated that the data showed a clear persistence of inflation and that it will be a worse outcome if the bank doesn’t bring inflation down. He also pointed to a very robust labour market with a smaller workforce than was the case before the covid outbreak.

Although the comments from Bailey were broadly hawkish, there was a net decline in Sterling yields on the day with the 2-year yield below 5.20%.

Sterling was also vulnerable to a liquidation of long positions following a sharp build-up in positions over the previous week. The inability to recover from a dip below the 1.2700 level against the dollar triggered a further sell-off in with Sterling sliding to lows just above 1.2600 after the US open.

Sterling also lost ground on the crosses with the Euro posting net gains to 0.8635 from highs above 0.8650.

Sterling recovered from lows and traded around 1.2630 against the dollar on Thursday with the Euro around 0.8625 with markets monitoring UK and global yield trends.


The Swiss ZEW investor sentiment index improved to –30.8 for June from –32.2 previously. The Euro was unable to make further headway during Wednesday, although hawkish central bank rhetoric limited potential franc support. The Euro settled just below the 0.9800 level with net dollar gains to 0.8970.

Expectations of a further Fed rate hike underpinned the dollar on Thursday and it traded around 0.8985 against the franc.

Technical Levels 

Tables 1 (167)

Economic Calendar

Fx Daily Calendar 29062023



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