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Euro-zone GDP was confirmed at 2.0% for the second quarter of 2021 with a marginal downgrade for annual growth to 13.6% from 13.7%. The Euro was unable to make any headway ahead of the New York open and drifted lower amid a firm dollar tone as markets fretted over risk conditions.

US retail sales declined 1.1% for July after a revised 0.7% increase the previous month and significantly weaker than consensus forecasts of a 0.3% decline. Underlying sales declined 0.4% on the month after a 1.6% gain for June and compared with expectations of a slight decline while the control group recorded a 1.0% decline after a 1.4% increase for June. There was a sharp decline in auto sales on the month with clothing sales also weak on the month.

After the much sharper than expected decline in consumer confidence reported last week, the weaker than expected retail sales data triggered further reservations over the near-term spending outlook, although markets had been braced for a weak release and uncertainty over trends remained high amid increased demand for services.

Risk appetite tended to dip again following the US data and the dollar secured renewed gains with the Euro extending losses. The dollar maintained a solid tone into the European close with the Euro retreating to lows at 1.1710. The Euro did find support close to the 1.1700 level, but with only a very limited recovery to 1.1715 on Wednesday despite a recovery in commodity currencies from overnight lows and a limited recovery in risk appetite.

Markets will examine the Fed minutes later on Wednesday for further evidence on sentiment within the committee with risk conditions remaining important.




US Treasuries were unable to make any headway following the retail sales data with markets already braced for a relatively weak data release. In this environment, the dollar was able to hold firm with net gains to near 109.50 against the Japanese currency.

US industrial production increased 0.9% for July, above consensus forecasts of a 0.5% gain while manufacturing output increased 1.4%. The NAHB housing index retreated to a 13-month low of 75 from 80 previously, maintaining some reservations over the underlying outlook, but the dollar edged higher amid wider demand.

Minneapolis Fed President Kashkari commented that inflation would remain elevated in the short term before declining while the end of this year or early next year would be reasonable timelines for a tapering of bond purchases. There were no comments on monetary policy from Fed Chair Powell which dampened activity to some extent.

Overall risk conditions remained fragile with underlying reservations over the situation in Afghanistan as well as global coronavirus developments.

Japanese exports and core machinery orders releases were slightly stronger than expected which had little overall market impact.

Risk appetite stabilised on Wednesday with net gains for equities which curbed immediate yen demand and the dollar settled around 109.60 with the Euro near 128.40.




Sterling was unable to gain support from the batch of labour-market data with many analysts expecting that the surge in wages growth would not be sustained as labour supply increases and skills mismatches gradually ease. There were also still reservations over the impact the end of the furlough scheme at the end of next month.

Overall risk conditions were also significantly more fragile ahead of the New York open with fresh concerns over coronavirus developments amid a lockdown in New Zealand after a case of coronavirus which is suspected to be the delta variant.

Sterling dipped back below the 1.3800 level against the dollar and traded below this level into the New York open. The UK currency was unable to regain ground later in the day with 3-week lows below 1.3750 against the US currency as risk conditions remained fragile and Sterling sentiment remained fragile.

The UK CPI inflation rate declined to 2.0% from 2.5% and well below consensus forecasts of 2.3%. The underlying rate declined to 1.8% from 2.3% and below expectations of 2.0%. Sterling edged lower on the weaker than expected data to trade around 1.3740 against the dollar with the Euro around 0.8530.




The Swiss franc posted further gains ahead of Tuesday’s New York open with the currency boosted by safe-haven demand amid fresh reservations over coronavirus developments, especially after the lockdown in New Zealand after a domestic delta-variant case.

The Euro declined to 9-month lows close to the 1.0700 level while the dollar struggled to make any headway. The Euro was held just above 1.0700 against the franc on Wednesday despite a slight recovery in equity markets with the dollar just below 0.9150 as tight ranges prevailed.


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