EUR / USD
In comments on Monday, ECB council member Vasle stated that core inflation remains high and resilient. Bundesbank head Nagel stated that core inflation is very sticky and the bank needs to raise rates again in July while the September decision would be driven by the data. There are still very strong expectations that the central bank will increase interest rates again at next week’s policy meeting. Markets will be on high alert for any fresh forward guidance from the central bank.
The Euro edged higher after the European open and posted a high just below the 1.1250 level before drifting lower again.
The New York Empire manufacturing index retreated to 1.1 for July from 6.6 the previous month, but was above consensus forecasts of –4.3.
Shipments increased at a slower pace while orders recorded another small increase on the month and unfilled orders continued to decline.
Labour-market indicators were stronger on the month, but there was a significant easing in upward pressure on prices paid and received.
Companies were slightly less optimistic over the outlook while pricing pressure are expected to increase slightly with overall data mixed.
The dollar secured an element of relief after the data with the Euro drifting lower. There was, however, no move to test the 1.1200 level and the Euro settled around 1.1235 against the US currency around the European close.
The latest US retail sales data will be released on Tuesday with expectations of a 0.5% monthly increase. The dollar overall remained on the defensive and unable to maintain gains with the Euro nudging higher to fresh 16-month highs above 1.1260 in early Europe on Tuesday before drifting lower again.
US Treasuries posted gains into New York’s market open with the 10-year yield retreating to below 3.80%. The dollar moved lower and tested the 138.00 level against the Japanese currency before a limited recovery.
Treasuries lost ground after the US data with higher yields underpinning the dollar and the US currency strengthened to just above the 139.00 level against the yen.
There were no comments from Federal Reserve officials with the central bank in the blackout period ahead of next week’s policy decision.
The dollar was unable to make any headway in Asia on Tuesday as US yields edged lower again with markets also monitoring Chinese developments. There was fresh speculation that China would boost fiscal policy to underpin demand with speculation over an easing of monetary policy also a significant element.
The dollar settled just below the 138.50 level against the yen as narrow ranges prevailed with the Euro near 155.80.
Sterling overall was held in relatively tight ranges during Monday, although the currency tended to drift lower on the day. There were further doubts whether the Bank of England expectations were realistic and there was significant caution ahead of the UK inflation data.
The latest COT data recorded the largest number of long Sterling contracts since 2007 and the largest value since 2014. The positioning data also increased concerns that there was little scope for further speculative buying and could lead to sharp losses if there is any shift in confidence or interest rate expectations. Sterling was unable to regain the 1.3100 level against the dollar and drifted lower again amid a firmer US dollar tone.
Sterling traded just below 1.3100 against the dollar on Tuesday and the Euro below 0.8600 with further caution ahead of Wednesday’s inflation data. Consensus forecasts are for the headline rate to decline to 8.3% from 8.7% with the core rate unchanged at 7.1%.
Swiss sight deposits increased to CHF494.7bn in the latest week from CHF486.6bn the previous week. This was a notable weekly increase and, although the data is volatile, there will be speculation that the National Bank has decided that liquidity has tightened enough in domestic markets.
The franc was again resilient on Monday with a significant lack of selling interest. The Euro settled with slight losses around 0.9665 while the dollar was unable to make any headway and settled around 0.8600. The dollar drifted lower to trade just below the 0.8600 level on Tuesday.