EUR / USD
Euro-Zone M3 money supply growth slowed to 0.6% in the year to June from 1.4% previously and below expectations of 1.0%. The Euro was able to resist any further selling pressure ahead of the Federal Reserve policy decision and edged higher to just above 1.1070 against the dollar as the US currency failed to make any headway.
The Federal Reserve increased interest rates by 25 basis points at the latest policy meeting which was in line with consensus forecasts and the vote on the committee was unanimous. The statement overall was little changed from the previous meeting with comments that the committee will take account of the cumulative tightening of monetary policy, the lags with which policy affects economic activity and inflation, and economic and financial developments in determining the extent of any further monetary tightening that might be appropriate. The immediate reaction was very limited with the dollar marginally weaker.
Fed Chair Powell stated that the impact of monetary tightening was being seen, but it would take time for the full effects to be seen. Powell insisted that the Fed was not set on hiking at every other meeting with the Fed data dependent and watching the data at every meeting.
In this context, it was possible that rates could be increased again in September or leave rates on hold.
He noted that there are two labour-market reports and two consumer prices inflation reports ahead of the September meeting with the releases very important.
Powell stated that policy is restrictive and that there are risks in doing too much or too little on monetary policy, but he also noted that staff are no longer forecasting a recession. The dollar edged lower during the press conference, but overall moves were limited as Powell reiterated the importance of incoming data.
The Euro settled just below the 1.1100 level against the dollar in early Europe on Thursday.
There are strong expectations that the ECB will hike interest rates by a further 25 basis points at Thursday’s policy meeting. Forward guidance from the bank will be watched very closely and will have an important impact on the Euro with choppy trading likely.
JPY
The dollar retreated after Wednesday's European open and was unable to regain any territory with lows below 140.20 against the yen.
US new home sales declined to an annual rate of 697,000 for June from a revised 715,000 previously and below consensus forecasts of 725,000, but the dollar managed to recover towards 140.50 against the yen ahead of the Fed policy decision.
There was a muted response in the bond markets to the Federal Reserve policy decision with yields slightly lower and the dollar drifting weaker.
The dollar edged lower, but found support below the 140.00 level against the yen.
The Bank of Japan will announce its latest policy decision on Friday with markets expecting no change in the yield curve control programme at this stage. Markets are, however, wary over the possibility of a tweak in the policy and there was limited yen position adjustment. The Chinese yuan was fixed stronger than expected which curbed US dollar support with the US currency close to 140.00 against the yen on Thursday and the Euro around 155.35.
GBP
Sterling held a firm tone after Wednesday’s European open with a gradual advance to highs above 1.2930 against the dollar while the Euro edged lower to around 0.8565. Expectations that the Bank of England would continue to raise interest rates beyond peak rates from the ECB and Federal Reserve continued to provide some support for the UK currency during the day.
There was little overall impact from global risk conditions during the day, although UK equities edged lower. The ECB policy decision and policy guidance will be important for Sterling on Thursday. The UK currency held firm around 1.2950 against the dollar with the Euro just above 0.8565 ahead of the ECB decision.
CHF
The Swiss ZEW economic expectations index edged lower to –32.6 for July from –30.8 previously and slightly weaker than consensus forecasts of –31.1.
The franc overall was little changed on the day with the Euro settling just below 0.9550.
The franc held a firm tone on Thursday with the Euro below 0.9550 and the dollar close to the 0.8600 level.
Technical Levels
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