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EUR / USD

The German ZEW economic sentiment index strengthened to a 71.5 for July from 59.3 previously which was well above consensus forecasts of 58.0 and the strongest reading since early 2004. The current conditions component, however, actually declined marginally on the month and remained in heavy negative territory which indicates that there are still important concerns over the situation. The Euro-zone ZEW index strengthened to 64.0 from 59.6 previously.
The July US NFIB small-business confidence index declined to 98.8 from 100.6, maintaining speculation that the economic recovery overall was slowing.
The dollar was unable to make any headway in European trading and gradually lost ground amid an absence of defensive support. The Euro pushed to highs just above the 1.1800 level before hitting resistance. The single currency was hampered by a sharp decline in precious metals after the Wall Street open.
Producer prices increased 0.6% for July after a 0.2% decline the previous month while the core rate increased 0.5% on the month with an annual increase of 0.3%.
The dollar was able to find an element of support during New York trading with the Euro retreating slightly as commodity currencies also faded.
The US currency secured fresh support later in the session with the Euro dipping to daily lows. Higher US yields underpinned the dollar on Wednesday while commodity currencies and gold retreated further with the Euro retreating to near 1.1700 before a recovery to 1.1730 with further choppy trading in prospect.

JPY

Chinese new loans growth slowed to CNY993bn from CNY1810bn the previous month and notably below consensus forecasts while money supply growth slowed to 10.7% from 11.1%. The data triggered some reservations over Chinese growth prospects, although the impact was limited.
Risk appetite strengthened ahead of Tuesday’s New York with sentiment boosted by the Russian claim that it had already produced a coronavirus vaccine and would start mass production in September. Despite major reservations over the rapid decision to grant approval, there was wider optimism over the vaccine outlook.
The yen lost ground amid vaccine optimism which helped trigger dollar gains to highs just above 106.50 at the European close.
US equities dipped lower after comments from Senate majority leader McConnell that fiscal stimulus talks are at a stalemate. California also recorded a sharp increase in new daily coronavirus cases which also sparked an element of caution, but the dollar was broadly resilient amid wider gains. US yields were an important influence as the 10-year yield increased to 4-week highs just above 0.65% ahead of huge bond issuance.
The dollar maintained a stronger tone on Wednesday with a covering of short positions and the US currency advanced to 2-week highs near 106.80.

GBP

Following the latest UK labour-market data, there were further concerns over underlying employment weakness and fears that the headline unemployment rate would increase sharply in the autumn once the furlough scheme ended. Sterling did edge lower briefly, but continued to find support on dips and was notably resilient despite underlying concerns over the domestic economic outlook.
Yields at the latest Treasury 5-year gilt auction declined to -0.05% from -0.03% previously, reinforcing a lack of underlying Sterling support. There was a renewed increase in new coronavirus cases which provided an element of caution over buying the UK currency given the threat of further lockdown measures.
Sterling was again resilient during the day with some support from the solid global risk tone. The currency pushed to higher near 1.3130 against the dollar before fading while the Euro traded below 0.9000. As the US currency gained ground, Sterling retreated to near 1.3000 as dollar gains were a key influence. Second-quarter UK GDP was reported at -20.4% for the second quarter with a year-on-year declined of 21.7% and both estimates marginally above consensus forecasts following a stronger than expected 8.7% recovery for June. Manufacturing data also beat expectations, but investment slumped with slight Sterling gains as the Euro traded just below 0.9000.

CHF

The Swiss franc was undermined by firm risk conditions during Tuesday as global equity markets made significant headway. A sharp decline in precious metals also eroded franc support to some extent while the Japanese yen was out of favour.
The Euro settled around 1.0770 with the dollar edging just above 0.9150. The franc edged lower on Wednesday as precious metals remained under pressure while the dollar was able to secure a further limited advance. The dollar tested weekly highs at the 0.9200 level before consolidating just below this level.

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COVID cases are rising across the globe as the delta variant spreads, this is causing some nervousness in financial markets, especially with the higher inflation rhetoric. Commodity prices have fallen since the Fed changed their tune inflation, the dollar has stabilised which has also been a headwind to prices. The summer months are traditionally quieter for metals demand which could prompt metals to consolidate. If the delta variant continues to spread, we may see higher levels of stimulus for longer. As things stand stimulus levels are set to be tapered and this could be brought forward if inflation remains high. We expect markets to remain volatile but on lower volume through the summer months.