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The Euro remained on the defensive in early Europe on Thursday. ECB minutes from July’s meeting indicated that some members were unwilling to extend the PEPP bond-purchase programme, although the council overall expected that the full envelope of potential would be used. The ECB also noted that market developments might be based on overly optimistic expectations about the recovery package and vaccine developments. The council expects more clarity about the inflation outlook in September and, overall, there was a high degree of uncertainty over the outlook with a limited Euro impact.

US jobless claims increased to 1.11mn in the latest week from a revised 0.97mn the previous week and above consensus forecasts of 0.93mn. Continuing claims declined to 14.84mn from 15.48mn the previous week and below market expectations of 15.00mn. The data recorded weekly increases in pandemic unemployment assistance claims on the week and there was also an increase in continuing claims on this basis.

The Philadelphia Fed manufacturing index declined to 17.2 from 24.1 the previous month and below consensus forecasts of 21.0. There was a small slowdown in new orders growth, but with a small decline in unfilled orders. There was a small increase in employees and workweek for the latest monthly data. Companies were slightly more confident over the six-month outlook with expectations of solid increases in employment and prices.

The Euro found support close to 1.1800 and advanced to the 1.1850 area at the European close at the US currency failed to hold its best levels and the dollar dipped further on Friday with the Euro close to 1.1880. The latest batch of Euro-zone and US PMI business confidence data will be released on Friday.



The dollar edged lower following the US data releases, failing to hold above the 106.00 level. Overall selling pressure was limited with the Japanese currency unable to secure sustained support despite losses in European equities. There were some reports from China that there would be talks on trade within the next few days.

Federal Reserve policy will remain a key market talking point, especially with uncertainty triggered by Wednesday’s minutes. Chair Powell confirmed that he will be speaking on the monetary policy framework at next Thursday’s Jackson Hole symposium.

There were further concerns over the US fiscal stimulus situation with House Speaker Pelosi stating that now is not the right time for a smaller coronavirus relief bill.

Japan’s PMI manufacturing index improved to 46.6 from 45.2 previously with some concerns that the index failed to regain the 50.0 level. There was also a retreat in the services sector with an unchanged composite reading, maintaining concerns over the outlook. There were reports that Chinese officials are looking to curb speculative trading amid fears over a backlash if there is a sharp decline in prices, but the Chinese yuan posted solid gains and the dollar dipped to near 105.50.


Sterling dipped lower in early Europe on Thursday, but was notably resilient during the day and posted strong net gains at the close. The UK currency recovered from lows below 1.3100 against the dollar to trade around 1.3170 at the European close while the Euro retreated to test the 0.9000 level. Expectations of extremely accommodative monetary policies by the ECB and Federal Reserve provided an element of support to the UK currency even though European equities lost ground.  

The UK currency pushed higher again late in US trading and strengthened to 1.3240 in early Europe on Friday. The GfK consumer confidence index was unchanged at -27 for August and weaker than the consensus forecast of -25. UK retail sales increased 3.6% for July, above consensus forecasts of 2.0% with a 1.4% annual gain. The July government borrowing requirement declined to £26.7bn from £29.5bn, but the deficit surged to over £150bn for the first four months of fiscal 2020/21.

Reaction to the data was muted with the Euro retreating to 5-week lows around 0.8970. The latest business confidence data will be scrutinised closely on Friday for evidence of the UK recovery profile and international comparison. Markets will also be monitoring trade rhetoric as the latest UK/EU negotiating round is completed.


The National Bank and other major central banks including the ECB and Bank of England will reduce the frequency of 7-day dollar liquidity operations due to low demand and improved dollar funding conditions. The franc maintained a firm underlying tone amid underlying demand for ‘hard’ currencies.

After strong gains on Wednesday, the Euro was unable to sustain the advance and dipped back below 1.0800 to trade near 1.0770. The dollar also declined sharply to below 0.9100. The Euro edged higher on Friday with the dollar edging lower to the 0.9070 area as markets eyed 5-year lows again, but wary over National bank action.



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