EUR / USD
The dollar was unable to make any headway ahead of Wednesday’s New York open with the currency undermined further by a lack of yield support. There were also further expectations of a Euro-zone recovery as coronavirus restrictions were eased which also underpinned the single currency.
The Euro moved above the 1.2200 level for the first time in over a week as the US currency remained under pressure and commodity currencies attempted to gain.
There was still an important element of caution ahead of crucial US inflation data on Thursday. Overall currency-market ranges were wider during the day amid positioning ahead of key events. In this environment, there was a reversal in trends later in the day amid dollar short covering.
The latest ECB policy decision will be announced on Thursday with expectations that the central bank would look to adopt dovish rhetoric in order to curb any tightening of financial conditions. According to sources, the ECB will also hold a three-day meeting to discuss the inflation strategy review.
The dollar secured a significant recovery towards the European close with the Euro also unable to hold above the 1.2200 level. With commodity currencies losing ground, the Euro retreated to lows near 1.2170. The dollar maintained a slightly firmer tone on Thursday ahead of the US inflation data with the Euro around 1.2165.
US Treasuries moved higher in early New York trading with the 10-year yield dipping to below 1.50% which sapped dollar support and the US currency remained under wider pressure with a retreat to 109.20 against the yen.
There was only a small rebound in yields, but the dollar did recover some ground as volatility increased. As the US currency continued a wider recovery, the dollar advanced to highs around 109.65 at the European close while yen sentiment remained weak.
There were reports that the Japanese government was considering a large economic stimulus package ahead of a general election which is scheduled for October.
Markets continued to monitor US-China relations with reports of positive dialogue between the commerce ministries. There were further suggestions from the Chinese foreign exchange regulator that there would be increased two-way fluctuations in the yuan in the future. There were still market expectations that the central bank would look to curb any further near-term currency gains. The dollar consolidated just above 109.50 at the European open with the Euro around 133.20.
Bank of England Chief Economist Haldane reiterated that the UK economic recovery was very strong and he also expressed significant concerns over the potential for higher inflation. He noted that higher costs and wages would feed through into higher prices and that the Bank of England would need to consider whether asset purchases should be scaled back. Rhetoric from bank officials will continue to be watched closely.
Sterling strengthened after the comment, but was unable to sustain the advance with further selling interest close to the 1.4200 level against the dollar.
The latest EU-UK talks over the Northern Ireland protocol made no headway and there was tough rhetoric from the EU with a stronger warning that the UK should comply with the Withdrawal Agreement and not take further unilateral action surrounding Northern Ireland trade procedures.
Markets have not tended to react to trade headlines over the past few weeks, but the latest EU rhetoric did have an impact with the UK currency losing ground. There was a dip back below 1.4150 against the US dollar while the Euro strengthened to near 0.8640.
UK housing data remained very strong with the RICS housing index strengthening further to 83 for May from 75 the previous month, the strongest reading since 1988. There were further important concerns over a lack of supply which continued to put upward pressure on prices.
Sterling was unable to make any headway on Thursday as it traded close to 1.4100 against the dollar with the Euro around 0.8625.
The Swiss franc maintained a firm tone on Wednesday and continued to resist selling pressure despite the very low level of domestic interest rates.
The Euro did find some support on approach to the 1.0900 area, especially with speculation that the National Bank would intervene to curb further appreciation.
Global inflation trends remained in focus with the Swiss currency continuing to gain an important element of support from long-term expectations of Swiss franc strength. The Euro edged below the 1.0900 level on Thursday with the dollar just above 0.8950 as the franc held a firm overall tone.