EUR / USD
The headline Euro-Zone CPI inflation rate declined to 5.3% for July from 5.5% previously and in line with consensus forecasts. The core rate held at 5.5% for the month and slightly above market expectations of 5.4%. The ECB will remain very wary over core inflation trends, especially with services-sector inflation at a record high and the central bank uneasy over the threat of upward pressure on wages.
According to provisional data, Euro-Zone GDP increased 0.3% for the second quarter and slightly above expectations of 0.2% with year-on-year growth at 0.6% from 1.1% previously. There were still important reservations surrounding the Germany economy with the government warning over five tough years and this dampened sentiment towards the single currency.
Firm risk conditions helped underpin the Euro, but it struggled to make any headway and gradually retreated to test the 1.1000 level after the European close.
The US Federal Reserve survey recorded a decline in loan demand and credit conditions are expected to tighten further.
The dollar nudged higher during Tuesday’s Asian session and the Euro drifted to below 1.1000 at the European open.
There will be important US data releases on Tuesday with the ISM manufacturing index and JOLTS job-openings data. There are expectations that the US manufacturing sector will remain in contraction territory despite a slight monthly improvement while job openings are also expected to slow slightly further.
A sharper slowdown in job openings would increase speculation over an easing of labour-market tightness.
The yen was subjected to further selling pressure after Monday’s European open with the Bank of Japan decision to buy bonds reinforcing expectations that the central bank would maintain a very dovish policy stance. In this environment, the dollar posted highs above 142.60 after the New York open.
Chicago Fed President Goolsbee stated that the last six months have shown that the central bank can bring down inflation without jobs losses. As far as policy decisions are concerned, he reiterated that the September decision would be data dependent.
The Dallas Fed manufacturing index improved slightly to –20 for July from –23.2 previously, maintaining reservations surrounding the industrial sector.
The dollar was unable to hold gains and retreated towards 142.00 as US yields moved lower.
China’s Caixin PMI manufacturing index retreated to 49.2 for July from 50.5 previously and below consensus forecasts of 50.1. The impact was offset by further expectations that China would engage in stimulus measures to underpin the economy.
The yen lost ground again in Asia on Tuesday as yield trends dominated with the dollar advancing to 142.70 against the yen.
There was an increase in UK mortgage approvals to 54,600 for June from a revised 51,100 the previous month and above consensus forecasts of 49,000. There was a small net increase in mortgage lending for the month after two consecutive declines while consumer credit increased at a faster rate.
Sterling was underpinned by favourable risk conditions during the day, especially with metals prices making headway.
Sterling hit highs just above 1.2870 against the dollar before drifting to just below the 1.2850 level as the dollar recovered ground.
The Euro advanced to highs at 0.8590 before a retreat to 0.8570.
There was further position adjustment ahead of Thursday’s Bank of England policy decision.
Sterling drifted lower to 1.2830 on Tuesday with the Euro at 0.8565 as markets continued to debate the Bank of England policy decision.
Total Swiss sight deposits edged higher to CHF490.1bn in the latest week from CHF489.3bn previously, but markets will want more weeks of stability or increasing deposits to suggest that the National Bank is looking to ease monetary policy.
The franc overall was able to resist losses with the Euro retreating to 0.9585 while the dollar consolidated around 0.8710 before edging higher to 0.8720 on Tuesday.