EUR / USD
In its latest monthly report, the Bundesbank reported that inflation could persist above the central bank target for longer. In particular, it noted that on-going wage pressures could make it harder to press ahead with curbing inflation.
The bank also warned that if union expectations stay above 2% for a long tome this would be worrying from a monetary point of view.
There were still doubts whether the ECB would be able to maintain a hawkish policy stance as the economy comes under pressure.
The Euro overall was able to make some headway on Monday with relief that it was able to resist new lows earlier in the session.
Tight ranges prevailed and the Euro edged to highs just above 1.0910 before drifting to trade around the 1.0900 level against the US dollar.
The latest business confidence data will be released on Wednesday with data from the Euro-Zone and US. There will be an important focus on the German data with expectations that the manufacturing data will not recover from the very weak July release. Pricing data will also be an important element in the data.
The relative outlook between the US and Euro area will also be an important element in the data.
Narrow ranges prevailed on Tuesday with the Euro trading just above the 1.0900 level against the dollar and trading around 1.0915.
JPY
After Monday’s European open, there were further reports that Chinese state banks were adsorbing yuan liquidity in an effort to help stabilise the yuan. Overall sentiment towards the Chinese economy and currency remained weak, especially with disappointment over the latest interest rate cut.
Markets were still wary over a potential announcement of fiscal stimulus by Beijing.
Bond markets remained a key focus during the day after significant pressures last week. Treasuries were unable to make any headway and posted sharp losses during the day with the US 10-year yield increasing to 15-year highs around 4.35%.
Higher US yields were crucial in supporting the US currency and undermining the Japanese currency. Equities were able to make headway and the dollar posted gains to highs at 146.40 and close to 9-mpnth highs before a slight correction.
There was no verbal intervention by the Bank of Japan, but markets remained wary over a potential move, especially after a meeting between bank governor Ueda and Prime Minister Kishida. There was a reluctance to sell the yen aggressively and the dollar tested support below 146.00 before trading close to this level in early Europe on Tuesday with the Euro below 159.50.
GBP
Sterling lost some ground after Monday’s European open, but was able to resist more than limited selling pressure as the overall yield structure supported the UK currency. Overall risk conditions also attempted to stabilise which helped underpin the Pound.
Sterling found support above 1.2700 level against the dollar and strengthened to 1.2765 as the US currency registered a correction against European currencies.
The Euro was little changed just below 0.8540 from highs around 0.8565.
The latest UK government borrowing data was slightly lower than expected which provided an element of relief and there was little net change in equities which stifled activity. Sterling edged higher to 1.2785 as the US currency drifted lower.
CHF
Swiss sight deposits declined to CHD476.2bn in the latest week from CHF 484.8bn previously which suggests that overall liquidity in the money markets are tightening further. The Swiss currency posted renewed gains amid expectations that the National Bank will be content to see the franc post net gains over the medium term.
The Euro was unable to hold the 0.9600 level and retreated to the 0.9570 area while the dollar retreated to 0.8785 and unable to regain territory on Tuesday.
