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EUR / USD

The French PMI manufacturing index edged lower to 57.3 for August from 58.0 previously and in line with market expectations while there was a retreat in the services sector index to 56.4 from 56.8 previously. The German manufacturing index retreated more than expected to 62.7 from 65.9 while the services-sector index beat consensus forecasts with a retreat to 61.5 from 61.8 the previous month.

The Euro-zone manufacturing index declined to 61.5 from 62.8 with the services index marginally lower at 59.7 from 59.8 with little net change in Euro-zone confidence.

The German Bundesbank warned that growth could undershoot projections this year due to virus resurgence and there was a risk that some restrictions could be re-imposed in the autumn if infections continue to increase. The Euro held a steady tone ahead of the New York open with a weaker dollar the main driving force.

The US PMI manufacturing index retreated to 61.2 from 63.4 and below consensus forecasts of 62.5 while the services index registered a sharper decline to an 8-month low of 55.2 from 59.9 and well below expectations of 59.5. Overall business confidence strengthened slightly on the month despite delta-variant concerns while there were further important supply-side difficulties with strong upward pressure on costs.

The dollar retreated following the weaker than expected US business confidence data with the Euro edging higher. There were increased doubts whether the Federal Reserve would back an early reduction in bond purchases, especially in view of concerns over the delta variant which could dampen US demand.

The dollar continued to edge lower with the Euro testing the 1.1750 area. Volatility eased later in the day while the dollar was unable to regain ground in Asia on Tuesday as overall risk conditions held firm. Commodity currencies posted further net gains and the Euro settled just below 1.1750.

JPY

US Treasuries edged lower into Monday’s New York open, but there was a reversal following the PMI data with the 10-year yield edging lower to 1.26% which limited the potential for dollar support. There was, however, a stronger trend surrounding risk appetite which curbed potential yen demand.

US existing home sales increased to an annual rate of 5.99mn for July from 5.87mn previously as low interest rates underpinned confidence.

The dollar was unable to regain ground and edged lower to 109.70 at the New York close as wider US losses dominated.

Overall risk appetite held firm in Asia on Tuesday which dampened yen demand as markets continued to monitor the impact of supply-side shortages. Concerns over the delta variant were contained, although there was still a high degree of unease over conditions. The dollar edged higher to 109.80 with the Euro just below 129.00.

GBP

According to flash data, the UK PMI manufacturing index declined to a 5-month low of 60.1 for August from 60.4 in July, but slightly above consensus forecasts of 59.5 while the services-sector index declined more sharply to a 6-month low of 55.5 from 59.6 and below market expectations of 59.0.

Although the data overall was weaker than expected, there was little impact on Sterling with markets focussing on supply-side pressures and global risk trends.

There were further important supply-side difficulties with the sharpest impact on output since the survey began in 1998. There was further upward pressure on wages, although the increase in prices eased slightly on the month.

The CBI industrial trends index edged higher to 18 from 17 previously and slightly above market expectations. There was, however a disappointing data on exports while prices continued to increase at a rapid pace. Data was mixed, but Sterling posted gains later in Europe with support from a stronger tone surrounding risk appetite.

There was a move above the 1.3700 level against the dollar after the US data and highs around 1.3730 while the Euro retreated slightly to below 0.8560. Trading ranges narrowed on Tuesday with Sterling around 1.3740 against the dollar while the Euro tested support below the 0.8550 level as global risk appetite held firm.

CHF

The Swiss franc was resilient on Monday despite a significant net strengthening in risk appetite on the day with markets still reluctant to sell the domestic currency.

Swiss sight deposits increased slightly to CHF715.0bn from CHF714.6bn previously which suggested that the National Bank had not been intervening aggressively to weaken the franc despite significant franc gains.

The Euro consolidated around 1.0720 with the dollar retreating to around 0.9125 and narrow ranges prevailed on Tuesday with risk conditions remaining under scrutiny.

Technical Levels

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