EUR / USD
The final Euro-Zone core consumer prices inflation reading for June was revised marginally higher to 5.5% from the flash reading of 5.4%. Higher core inflation may nudge the ECB towards a more hawkish policy stance, although the overall impact should be measured at this stage.
There was still some speculation that the ECB would adopt a less hawkish stance after a July rate hike and the Euro was unable to make any headway.
Council member Stournas stated that inflation is falling and more tightening could hurt the economy. The dollar also gained net support, especially with buying against Sterling and, in this environment, the Euro retreated to test the 1.1200 level.
At this stage, there are very strong expectations that the Federal Reserve and ECB with both increase rates by 25 basis points at next week’s policy meetings.
Markets do not expect Fed rate hikes beyond July while there is an important element of uncertainty over the ECB September decision.
The Euro dipped to lows close to 1.1175 before a recovery to the 1.1200 level and edged higher to 1.1210 on Thursday as the dollar retreated again.
JPY
US housing starts declined to an annual rate of 1.43mn for June from a revised 1.56mn the previous month and slightly below consensus forecasts of 1.48mn. Building permits also retreated to 1.44mn from 1.50mn and also slightly below expectations.
The data is liable to dampen expectations of a housing-sector recovery to some extent with wider US trends in focus.
US yields edged lower on the day, but the yen was unable to make any headway after dovish Bank of Japan rhetoric the previous day and the dollar challenged the 140.00 level against the Japanese currency.
The latest US jobless claims and Philly Fed index will be released on Thursday and will provide further evidence on the US outlook. A sharp increase in jobless claims and weak Philly survey would trigger fresh reservations surrounding the US outlook.
In Asian trading on Thursday, the Chinese central bank fixed the yuan much stronger than expected in an attempt to curb speculative pressures against the currency.
The move also curbed wider dollar support with a retreat to around 139.50 against the yen ahead of the overnight Japanese inflation release.
GBP
Sterling continued to lose ground on Wednesday following the weaker than expected inflation data. There was a sharp decline in UK yields on the day which undermined the UK currency. There was also a significant shift in Bank of England expectations with expectations of peak UK rates dropping towards 5.75% from 6.00% ahead of the data. Sterling continued to retreat with a test of 1.2900 against the dollar.
The UK currency lost ground despite a strong advance in UK equities and significant net gains in global markets. Sterling slumped to lows at 1.2870 against the dollar while the Euro hit 7-week highs at 0.8700.
Bank of England deputy Governor Ramsden stated that inflation is still much too high and if there is evidence of persistent inflation pressures then further monetary policy tightening would be required. He added that energy prices had fallen more than expected while other elements remain elevated. He was, however, reluctant to give any significant policy guidance ahead of the August policy meeting.
Ramsden’s comments helped trigger a Sterling rally with a recovery to 1.2930 against the dollar while the Euro retreated to 0.8665 amid gains in global equities.
Sterling traded around 1.2920 on Thursday with the Euro around 0.8675.
CHF
The Swiss franc maintained a firm tone on Wednesday with a retreat in global yields tending to underpin the franc while gains in global equities also failed to dislodge the Swiss currency. The Euro retreated to just below 0.9610 and a fresh 9-month low with the dollar held below the 0.8600 level. The franc maintained a firm tone on Thursday with the dollar around 0. 8565 and close to 8-year lows as overall franc sentiment held firm.
Technical Levels
