EUR / USD
The German ZEW investor confidence index declined to 40.3 for August from 63.3 the previous month and below consensus forecasts of 56.7. The current conditions component strengthened to 29.3 from 21.9 previously, although marginally below market expectations. The Euro-zone ZEW index retreated to 42.7 for the month from 61.2 in July. The dip in confidence data maintained underlying reservations over the Euro-zone outlook which also maintained a lack of confidence in the Euro with the single currency unable to regain any territory as market sentiment remained negative.
The July US NFIB small-business confidence index retreated to 99.7 from 102.5 the previous month with an overall dip in confidence. There were further reports of labour shortages with a lack of skilled workers and there was further upward pressure on prices as supply-side issues continued to have an important impact.
There were further expectations that the Federal Reserve will announce plans to taper bond purchases at the September policy meeting.
The dollar maintained a strong tone, although there was a significant shift during the day as the Euro remained vulnerable while commodity currencies were able to regain some ground. The Euro dipped to lows near 1.1700 with speculation that any break below this level would trigger further stop-loss selling. The single currency did, however, hold above 1.1700 which triggered a marginal recovery amid position adjustment.
Markets will also be looking ahead to the Jackson Hole symposium in the last week of August with Fed Chair Powell due to deliver a keynote speech with strong hints likely over the September decision. The latest CPI inflation data will also be watched closely on Wednesday. Tight ranges prevailed on Wednesday ahead of the inflation data with the Euro close to 1.1720 as the dollar maintained a firm underlying tone with a reluctance to engage in aggressive positioning.
JPY
US Treasuries lost ground in early New York trading with the 10-year yield moving higher which helped underpin the US dollar while overall equity markets were relatively stable. The dollar edged above the 110.50 level against the yen with a lack of defensive demand for the Japanese currency.
From a longer-term perspective, there was further speculation over Fed leadership with Chair Powell’s current term due to finish in February 2021. There was also speculation that elements of the US Administration will push for Brainard as Chair which would be seen as a relatively dovish appointment.
Chicago Fed President Evans stated that he would like to see a few more jobs reports before a taper decision, maintaining a more dovish stance than other recent Fed speakers, although there was little impact on market pricing with the 10-year yield at 5-week highs.
The dollar continued to edge higher later in the day as the Senate approved the bipartisan infrastructure spending bill which boosted growth confidence. Narrow ranges prevailed in Asia with equity markets little changed and the dollar consolidated around 110.65 with the Euro around 129.70 as the Chinese yuan remained weak.
GBP
There were no significant UK data releases on Tuesday with low trading volumes also tending to dampen price action. Markets were continuing to monitor coronavirus developments with no significant change in the narrative at this stage as levels of serious illness remained low, but there were still reservations over the delta variant, especially with high infection rates globally despite high vaccination levels. Overall risk appetite held steady which limited the scope for any Sterling selling and the UK currency also drew underlying support from expectations that the Bank of England was moving towards a hike in interest rates.
Sterling was able to hold steady against the US dollar despite underlying US currency gains while the Euro weakened to fresh 17-month lows close to 0.8450.
There was a correction later in the day after the Euro found support at 0.8450. The latest monthly UK GDP data will be released on Thursday with expectations of 0.8% monthly growth for June. Sterling traded around 1.3825 against the dollar on Wednesday with the Euro around 0.8475.
CHF
The Swiss franc was unable to make any headway in Europe on Tuesday. There was an underlying lack of support for low-yield assets with the yen losing ground while precious metals also remained vulnerable which undermined potential franc demand.
The Euro consolidated above the 1.0800 level while the dollar hit highs around 0.9235 before correcting slightly. Markets were also wary over the potential for National Bank action to take advantage of any weakness to push the currency lower and the Euro traded just above 1.0800 against the franc on Wednesday.
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