EUR / USD
ECB council member Visco stated that the central bank is not very far from the peak in interest rates and reiterated that he did not agree with the preference for further tightening. The minutes from June’s policy meeting stated that the bank is open to increasing rates past July to bring inflation back to target.
There will, however, be some speculation that weak demand and an easing of producer prices, allied with a stronger Euro will trigger a rethink by the central bank.
The Euro, however, maintained a strong tone into the New York open with the dollar remaining under pressure.
US initial jobless claims declined to 237,000 in the latest week from a revised 249,000 previously and below consensus forecasts of 250,000 while continuing claims edged higher to 1.73mn from a revised 1.72mn.
The dollar was unable to draw any support from the data, especially with reduced fears surrounding inflation. The US currency continued to lose ground with the Euro posting fresh 16-month highs just above the 1.1200 level just after the European close. The dollar remained firmly on the defensive on Friday with the Euro posted fresh 16-month highs above 1.1240 before a slight correction to 1.1220. The University of Michigan consumer confidence data will be released on Friday. Within the release, inflation expectations data will be watched closely following a sharp decline recorded last month.
JPY
US producer prices increased 0.1% for June after a 0.4% decline the previous month. The year-on-year increase declined to 0.1% from 0.9% previously which was below expectations of 0.4% and the weakest reading since January 2021.
Core prices declined 2.4% in the year to June from 2.6% previously and the weakest reading since February 2021.
The weaker than expected producer prices data reinforced market expectations that underlying inflation pressures were continuing to ease.
Treasuries overall continued to make headway with the 2-year yield declining to 2-month lows around 4.65%.
San Francisco Fed President Daly stated that it’s too early to declare victory on inflation, but the good news on inflation this week is indeed good news.
She added that saying that two further rate hikes were needed was a way to keep optionality open which suggests that she is certainly prepared to back away from that position. She also stated that nominal rates would come down as inflation comes down.
The dollar was unable to hold rallies and retreated to near 138.00 at the European close.
Fed Governor Waller maintained a notably hawkish stance with comments that two further rate hikes are needed this year and that September will be a live meeting for a further rate hike. He also considers that the bulk of past rate hikes have already had an impact on the economy.
There was fresh speculation that the Bank of Japan would raise its inflation forecasts and potentially adjust monetary policy at the July meeting which boosted the yen and the dollar posted 8-week lows around 137.25 before a recovery to 137.85 into the European open.
GBP
Sterling overall drew some relief from the latest GDP data with resilience in services, but there were still concerns over underlying economic trends and the underlying threat of stagflation. At this stage, high UK yields continued to provide important support to the UK currency, especially with US and German yields moving lower.
The UK currency also gained net support from stronger global risk appetite, especially with equities making significant net headway.
There were still underlying concerns over the UK structural position, especially with the Office of Budget Responsibility warning over longer-term debt levels.
With the dollar overall under pressure, there was a convincing break above the 1.3000 level against the US currency with a move towards 1.3100 after the US data.
Dollar weakness continued to dominate with Sterling hitting 15-month highs just below 1.3150 before a correction to 1.3120.
CHF
The Swiss franc maintained a firm tone into Friday’s New York open with the Euro dipping below the 0.9650 level while the dollar posted further losses to fresh 8-year lows below 0.8620 as US yields declined further. The franc continued to gain support from longer-term confidence in the Swiss fundamentals.
The franc remained resilient on Friday with the dollar sliding to 8-year lows at 0.8570 before a slight correction.
Technical Levels
Economic Calendar
