EUR / USD
The German ZEW investor economic sentiment index strengthened to 63.4 for June from 51.0 previously. This was above consensus forecasts of 60.0 and the strongest reading since the first quarter of 2006. There was a slight recovery in the current conditions index to -83.1 from -93.5, but held close to record lows. German Chancellor Merkel downplayed the potential for agreement on the EU recovery fund at this week’s summit with comments that a deal was likely in July which hampered the Euro
US retail sales strengthened 17.7% for May following a revised 14.7% decline the previous month and well above consensus forecasts of 8.0%. Excluding autos, sales increased 12.4%, after a 14.4% decline previously while the control group posted an 11.0% monthly gain.
Sales were boosted by the re-opening of outlets, especially as consumers also received government support cheques. The Euro had been unable to sustain gains ahead of the New York open and the dollar gained ground following the sales data with a Euro dip below 1.1300.
Industrial production increased 1.4% for May, below expectations of 2.9% while the NAHB housing index rebounded strongly to 58 from 37 previously.
In testimony to Congress, Fed Chair Powell reiterated that interest rates would remain at zero until the economy is on track and that the Fed is fully committed to using its full range of tools to support the economy. Powell downplayed the potential use of the corporate buying programme which triggered a sharp dip in risk appetite, but there was a partial reversal after he stated that there is a reasonable probability that more support measures will be needed from the Fed and Congress. He also stated that bond buying was likely to continue for several years and remained generally cautious over the outlook.
The dollar overall continued to gain net support and the Euro retreated to the 1.1230 area before finding support. The US currency edged lower on Wednesday with the Euro around 1.1275, although narrow ranges prevailed with uncertainty over current driving factors for the US currency contributing to caution.
The dollar was held in tight ranges ahead of the New York open with both currencies struggling for sustained support as equity markets held firm.
Risk appetite dipped after the Wall Street open as coronavirus fears increased once again. There was a spike in Florida cases of 3.6% on the day compared with the 7-day average of 2.5% and Texas hospitalisations also hit a record high, maintaining unease over US trends.
Concerns were also fuelled by Beijing’s decision to lift the coronavirus alert to level 2. The yen gained some renewed defensive support with the dollar below 107.50.
Japan’s monthly manufacturing Tankan index retreated further to -46 for June from -44 previously, although there was a recovery in the services sector to -32 from -36. There were further concerns surrounding Chinese coronavirus developments with Beijing imposing a residential lockdown across the city. Tensions between China and India also contributed to the fragile market mood, although selling pressure was limited with the dollar edging lower to the 107.30 area.
The UK labour-market data recorded a further increase in the jobless claimant count of 529,000 for May and there was a very substantial upward revision for April to 1.03mn from the original figure of 0.86mn with the total of 2.8mn, the highest reading for 27 years. There was also a decline in the number of employed of over 600,000 for May. Vacancies declined at the fastest pace on record which will reinforce concerns over the longer-term outlook while the data recorded that 9.0mn employees were furloughed. Sterling initially lost ground following the data, but regained ground as global risk appetite remained firm.
There was a slightly more defensive tone in New York, although the main impact was from a US dollar recovery. The UK currency dipped to lows near 1.2550 against the dollar while the Euro settled around 0.8960. The headline CPI inflation declined to 0.5% for May from 0.8% previously, in line with consensus expectations, with the core rate declining to 1.2% from 1.4%. The data will maintain expectations of further Bank of England easing, but Sterling ticked higher to 1.2570.
The Swiss franc was able to resist selling pressure on Tuesday even when risk appetite held firm. As the Euro lost wider traction, the single currency dipped to below the 1.0700 level. The dollar was also unable to gain any traction and settled just below the 0.9500 level.
The franc gained an element of support from concerns over the EU recovery fund, but the Euro was able to find support below 1.0700 and held close to this level on Wednesday. There was an element of caution ahead of Thursday’s National Bank policy meeting, although no changes in rates are expected.