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Daily FX Report

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EUR / USD

There were tight currency ranges ahead of Thursday’s New York open with important caution ahead of the latest US jobs data. The Euro was unable to sustain a move back above 1.1850 against the dollar, but resisted further selling pressure with a reluctance to engage in fresh positions.

US initial jobless claims declined to 385,000 in the latest week from a revised 399,000 the previous week and close to consensus forecasts while continuing claims declined sharply to 2.93mn from 3.30mn the previous week. The data did not provide further significant evidence on the labour-market trends.

The US goods trade deficit widened to $75.7bn for June from $71.0bn the previous month and above expectations of $74.0bn with a strong increase in imports for the month. The Euro overall remained on the defensive later in the day with vulnerability on the crosses, especially given expectations of dovish ECB policies. Although the dollar struggled to make headway against commodity currencies, the single currency retreated to near 1.1830 as tight rages dominated.

The latest US employment report will be released on Friday with market expectations of an increase in non-farm payrolls of around 870,000 and a decline in the unemployment rate to 5.7% from 5.9%. Strong data would reinforce expectations of an early Fed move to taper asset purchases while weak data would trigger renewed speculation over caution. The dollar maintained a firm tone in early Europe on Friday amid short covering with the Euro around 1.1825 as it struggled to secure support.

JPY

US equity futures moved higher on Thursday and US yields also regained ground with the 10-year yield above 1.2%. Overall risk conditions were more favourable with a fresh flow of funds into commodity currencies and there was a dip in defensive support for the yen. In this environment, the dollar posted a net advance to 109.70.

Fed Governor Waller stated that the central bank may be able to pull back on the amount of monetary stimulus sooner than some think. US yields remained higher on the day and equity futures posted gains with the dollar edging higher to the 109.80 area as defensive yen demand remained weaker.

Minneapolis head Kashkari maintained a broadly dovish stance with comments that the economy is still in a deep hole, although he was optimistic that there would be strong jobs reports in the autumn which could meet the substantial further progress bar.

There was a sharp decline in Japanese household spending for June while coronavirus concerns were important in curbing underlying confidence. The yen was little changed on the crosses with the dollar edging higher to the 109.80 area with the Euro around 129.80.

GBP

The UK construction PMI index declined to a 5-month low of 58.7 for July from 66.3 the previous month and well below consensus forecasts of 64.0. There were still important supply-side difficulties and strong upward pressure on costs, maintaining underlying concerns over inflation.

The Bank of England held interest rates at 0.1% following the latest policy meeting, in line with consensus forecasts. There was a 7-1 vote for maintaining the asset-purchase programme as Saunders voted for purchases to be scaled back. There was a sharp upward revision to the inflation forecasts with the rate now expected to be 4% for the fourth quarter of 2021 compared with the 2% target. The bank also noted that upside inflation risks had increased. Although several members on the committee considered that the conditions for policy tightening had been met, the committee overall still wanted to wait before withdrawing stimulus.

Markets had been expecting a split vote which limited the potential impact, although bond yields did move higher. Sterling overall was unable to make significant headway after the release with no evidence of a rapid move towards higher interest rates and the Euro continued to find support around 0.8500.

Overall Sterling sentiment held steady while gains in commodity currencies also helped underpin confidence. Sterling settled around 1.3935 against the dollar while the Euro continued to test the 0.8500 support area. The UK currency held around 1.3820 against the dollar in early Europe on Friday with the Euro just below 0.8500.

CHF

The Swiss franc edged lower on Thursday, although overall selling pressure remained very limited with the currency out-performing the Japanese yen.

The overall level of real interest rates continued to underpin the Swiss currency, especially with low global nominal interest rates.

The Euro settled around 1.0730 with the dollar around 0.9065. Narrow ranges prevailed on Friday with the franc only slightly lower despite the potential for National Bank intervention to curb potential Swiss currency gains with the dollar around 0.9075.

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