EUR / USD
The Euro continued to fluctuate around the 1.1900 level against the dollar ahead of Tuesday’s New York open with relatively tight ranges. Given that the latest CFTC data recorded a net increase in short dollar positions, there was increased potential for a covering of short positions which maintained a nervous tone in markets.
The US existing home sales were little changed at an annual rate of 5.80mn for May from 5.85mn previously with supply issues having an impact.
The Richmond Fed manufacturing index strengthened to 22 for June from 18 previously with a strong increase in new orders. Employment increased at a solid pace for the month while their upward pressure on costs and prices eased only slightly on the month.
Euro-zone consumer confidence improved to -3.3 for June from -5.1 previously, although markets had been expecting a slightly faster rate of improvement.
Overall, the dollar continued to edge lower late in the European session with the Euro strengthening to near 1.1930.
Fed Chair Powell stated that a lot of patience may be required to understand what is really happening on inflation and employment. He added that he sees factors affecting inflation fading over time and added that he had a high degree of confidence in forecasting transitory inflation.
Powell also stated that there was still a long way to go on the employment front while there would be a lot more job creation in autumn. Overall, he noted that the Fed won’t raise rates on fears of inflation alone. The rhetoric overall was relatively dovish and failed to support the dollar with the Euro posting net gains to 1.1950 as risk appetite held firm and commodity currencies posted gains. The dollar did recover some ground on Wednesday, although the Euro held above the 1.1900 level.
US Treasuries briefly strengthened ahead of Tuesday’s New York open with US yields moving lower, but there was a reversal with the 10-year yield edging back towards 1.50% and the dollar was able to post net gains as the yen remained firmly on the defensive.
Risk appetite held firm following Powell’s comments with equities posting net gains and the dollar posted highs around 110.80 before settling around 110.60.
San Francisco Fed President Daly stated that the central bank is not even talking about raising interest rates as dovish rhetoric continued.
Japan’s PMI manufacturing index declined to 51.5 for June from 53.0 previously with activity constrained by severe supply-chain pressures. The services index remained in contraction at 47.2 from 46.5 previously, maintaining a lack of confidence in the overall outlook. Markets remained wary over geopolitical tensions between the US and China, although equity futures did post gains in Asia. Overall, the dollar edged higher to the 110.80 area as the Euro settled above the 132.0 level.
There was little reaction to the UK government borrowing data with an underlying net improvement amid economic recovery, but important underlying vulnerability. Sterling drifted lower in early Europe before regaining some ground as risk appetite held firm.
The CBI June industrial orders index strengthened to 19 from 17 previously and slightly above consensus forecasts. This was the strongest reading since 1988 and output in the latest three months increased at the fastest pace since 1975. There were further notable supply shortages with strong upward pressure on costs and prices.
Underlying Sterling sentiment held firm during the day with a solid tone surrounding risk appetite helping to provide net support. There was also speculation that the Bank of England would adopt a more hawkish stance at this week’s policy meeting which was significant in curbing any potential selling pressure.
Later in the day, there were also some reports that there had progressed in EU-UK talks over the Northern Ireland protocol.
Overall, Sterling strengthened to highs above 1.3950 against the weaker dollar while the Euro settled close to 0.8560 after finding support just below 0.8550. Sterling failed to make further headway on Wednesday but held just below 1.3950 against the dollar ahead of the latest UK business confidence data.
The Swiss franc edged lower on Tuesday with firm global risk conditions undermining potential support for the currency as Federal Reserve comments provided reassurance. The Euro advanced to highs near 1.0970 before fading slightly with the dollar unable to hold above the 0.9200 level.
Expectations of very low-interest rates continued to undermine potential Swiss currency support with demand for the franc also undermined by euro-zone recovery confidence. The Euro traded around 1.0960 on Wednesday with the dollar just below 0.9200.