EUR / USD
The Euro-zone PMI services sector index was revised higher to 48.0 in the final reading from the flash reading of 47.6. The German figure was revised into expansion territory, although the sector overall was in contraction and there was a sharp decline for the Spanish services sector.
Markets remained uneasy over coronavirus developments given fresh restrictions in Paris and Madrid which will undermine activity, especially in the services sector.
The Euro-zone Sentix investor confidence index edged lower to -8.3 for October from -8.0 previously, although this was slightly above consensus forecasts of -9.5. Euro-zone retail sales increased 4.4% for August with a 3.7% annual increase from -0.1% previously and above consensus forecasts of 2.2%.
Bundesbank head Weidmann stated that the German economy appears to be V-shaped, although it is in fact becoming flatter.
The US PMI services-sector index was unchanged from the flash reading of 54.6 and slightly below the previous reading of 55.0. The ISM non-manufacturing index strengthened slightly to 57.8 for September from 56.9 previously and above consensus forecasts of 56.5. There were stronger readings for new orders and business activity while employment moved into positive territory for the month. The data had little overall impact as risk conditions and politics dominated.
The dollar overall lost support during the day amid a dip in potential defensive demand and the Euro strengthened to highs fractionally below the 1.1800 level. The US currency failed to make headway on Tuesday as overall risk appetite held firm with the Euro around 1.1785 as German industrial orders increased 4.5% for August.
Bank of Japan Governor Kuroda stated that the economy is in a severe condition, but picking up, while risks are to the downside. The comments continued to have little underlying impact on the Japanese currency as global risk conditions dominated. Low yields continued to deter aggressive capital outflows from Japan.
Overall risk appetite held firm amid increased speculation that a further fiscal support programme would be approved. Equity markets posted strong gains, although there was still an important element of caution given uncertainty over political developments. Chicago Fed President Evans continued to lobby for further fiscal stimulus and reiterated his preference for an inflation rate at 2.5% for some time. With equities making gains, the dollar advanced to near 105.80.
Risk appetite held firm after President Trump was released from hospital, although there were still underlying reservations over his health while there were further coronavirus cases within the White House. There were also further uncertainties over fiscal policy developments with on-going tensions between Treasury Secretary Mnuchin and House Speaker Pelosi, although talks are set to continue. The dollar edged lower to the 105.65 area as equity futures were little changed.
The final UK PMI services-sector index was revised higher to 56.1 from the flash reading of 55.1, although this was still a slowdown from the August reading. In comments on Monday, Bank of England Monetary Policy Committee Member Haskel stated that near-term risks for the economy are skewed to the downside. Inflation pressures are likely to remain low, especially with a material amount of spare capacity in the economy. Haskel stated that he was ready to back further stimulus and was slightly more positive on the potential benefits of negative interest rates. There was no significant reaction to Chancellor Sunak’s Conference speech with underlying concerns over unemployment still significant with the furlough scheme ending at the end of this month.
The overall impact of domestic economic fundamentals was limited with markets monitoring political developments and global risk appetite. There were underlying expectations that some form of the deal would be agreed with the EU even if the timetable slipped while firmer equity markets underpinned the currency.
Sterling pushed to higher near 1.3000 against the dollar with the Euro edging higher to near 0.9085. Developments surrounding trade talks will continue to be watched closely with the UK currency holding steady on Tuesday after hitting selling interest close to 1.3000 against the dollar.
Swiss sight deposits increased slightly to CHF705.1bn from CHF704.5bn the previous week which suggested limited currency intervention during the week from the National Bank. Markets will remain on alert for any rhetoric on currency intervention from the US Treasury.
The franc was hampered to some extent by gains in equities during the day with the Euro again testing the 1.0800 area while the dollar retreated to lows just below 0.9150. The franc was little changed on Tuesday with the US currency settling around 0.9150 as markets continued to monitor political developments.