EUR / USD
There were no significant data releases during Monday. The Euro overall remained under pressure with a further lack of confidence in the Euro-Zone outlook. There were also further reservations surrounding the Chinese outlook which sapped single currency support.
The Euro attempted to rally after the European open as equities recovered from lows, but made little headway and was capped around 1.0960 against the dollar.
As the recovery in risk appetite stalled quickly, the dollar gained fresh support and the Euro dipped to 1.0900 around the US open.
The Euro hit fresh 5-week lows at 1.0875 before a tentative recovery towards the European close.
The latest Chinese data was weaker than expected with industrial production growth held to 3.7% in the year to July from 4.4% previously and compared with expectations of 4.3% with retail sales growth at 2.5% from 3.1% in June and below consensus forecasts of 4.2%.
Ahead of the release, China announced an unexpected cut in interest rates with the 1-year MLF rate cut to 2.50% from 2.65%.
The Chinese central bank also intervened to buy the yuan and fixed the currency much stronger than expected. The data provided no help for the Euro, but it held just above 1.0900 against the dollar after the Chinese rate cut as risk appetite attempted to stabilise.
JPY
The dollar was held just below the 145.00 level against the yen after Monday’s European open with markets wary over the threat of Ministry of Finance verbal intervention to curb yen losses. US yields initially edged lower, but there was further selling in Treasuries around the New York open with US yields moving higher. Immediate fears surrounding the intervention threat also eased after the Asian close and the dollar secured a renewed push above the 145.00 level.
As US yields moved higher, the dollar posted strong gains to 9-month highs above 145.50 before a retreat to 145.30 as Treasuries regained some ground.
The latest New York Federal Reserve survey recorded a decline in 1-year inflation expectations to 3.5% from 3.8% and the lowest reading since April 2021. The 3 and 5-year expectations both declined to 2.9% from 3.0% previously.
Japanese GDP data was stronger than expected with second-quarter GDP growth of 1.5% from 0.7% previously and above expectations of 0.8%.
There was no evidence of intervention to support the yen and the dollar hit 9-month highs at 145.60 before settling close to 145.50.
GBP
Sterling secured a slight recovery after Monday’s European open as equities attempted to recovery from opening lows. Sterling edged above 1.2700 against the dollar, although there was selling above this level with a fresh retreat into the New York open.
As equities retreated and the dollar gained further traction, Sterling dipped sharply to lows below 1.2620. The US currency surrendered some gains later in the day with Sterling rallying to near 1.2700 while the Euro retreated to near 0.8600.
The UK labour-market data recorded an increase in the unemployment rate to 4.2% in the three months to June from 4.0% previously and employment declined.
Wages data, however, was stronger than expected with headline earnings growth jumping to 8.2% from 7.2% previously and well above expectations of 7.3%.
Underlying earnings also increased 7.8% from a revised 7.5% previously and above expectations of 7.4%. Stronger wages data will reinforce expectations of more aggressive Bank of England rate hikes. Sterling edged above 1.2700 against the dollar with the Euro below the 0.8600 level.
The latest UK inflation data will be released on Wednesday. There are expectations that the CPI index will decline 0.5% on the month due to an important extent from the cut in energy prices at the beginning of July. The headline year-on-year rate is forecast to decline to 6.8% from 7.9% previously and this would be the lowest reading since March 2022. The core rate is expected to be unchanged at 6.9%. Marekts and the Bank of England will be monitoring inflation rates in the services sector closely.
CHF
Total Swiss sight deposits declined to CHF484.8bn in the latest week from CHF 492.9bn previously. After two weeks of net increases, the renewed decline reinforced expectations of tightening liquidity conditions. The Swiss franc edged lower on Monday despite fragile risk conditions. The Euro edged back above the 0.9600 level while the dollar moved above the 0.8800 level. There was little net change on Tuesday with the dollar around 0.8780.
Technical Levels
