EUR / USD
German factory orders increased 3.4% for July after a revised 4.6% increase for the previous month and much stronger than consensus forecasts of a 1.0% monthly decline for the month which helped underpin Euro sentiment to some extent.
The Euro-zone Sentix investor confidence index retreated to 19.6 for September from 22.2 the previous month even though the assessment of the current condition remained strong. The overall reading was very close to market expectations while the survey also indicated further evidence of a slowdown in the global economy.
The market impact was limited with narrow ranges prevailing, but the Euro tended to drift lower amid expectations that the Federal Reserve would push ahead with a tapering of asset purchases this year given that the labour market overall remains robust.
There was still an element of caution ahead of Thursday’s ECB policy meeting amid speculation that the hawkish voices would gain traction within the committee. Narrow ranges prevailed with the Euro around 1.1870 at the European close. The dollar secured a limited advance against commodity currencies in Asia on Tuesday, but the Euro held steady and traded around 1.1870 as German industrial production was close to expectations with a 1.0% increase for July.
JPY
Trading conditions were inevitably subdued on Monday given that US markets were closed for a holiday. US equity futures edged higher which limited the potential for defensive yen demand, but narrow ranges dominated markets.
Markets were waiting for further comments from Federal Reserve speakers with a particular focus on whether Friday’s jobs report has shifted their assessment of the economic outlook and potential timetable for slowing asset purchases. There will be significant comments over the remainder of the week.
Overall, the dollar settled little changed around 109.85 at the European close with slight net gains for the Euro against the Japanese currency.
Japanese Prime Minister candidate Kishida stated that he wants a fiscal support package of JPY30trn which provided some support to yen sentiment.
The latest Chinese trade data on exports was mixed, but the import data was much stronger than expected which helped underpin confidence in Chinese demand.
Asian equities overall held firm on Tuesday and the dollar overall was held in tight ranges as it edged higher to 109.85 against the yen with the Euro around 130.35.
GBP
The UK PMI construction index declined to a 6-month low of 55.2 for August from 58.7 the previous month and below market expectations of 56.9. Growth in new orders also slowed to a 5-month low for the month with a slowdown in all main sectors for the month. The underlying demand for labour remained strong, but with evidence that a lack of skilled labour was curbing employment growth. There were further severe supply-chain disruptions that curbed activity and cost pressures remained strong with the second-highest rate of increase in input costs on record.
The data maintained some concerns that the economic recovery will falter over the next few months, especially with important supply-side difficulties, although the inflation implications will also be potentially important with Bank of England rhetoric remaining under close scrutiny.
The latest YouGov survey recorded that one-year inflation expectations were unchanged at 3.1% with long-term expectations edging higher to 3.5% from 3.4%.
The currency edged lower with some concerns over the risk of renewed Brexit tensions as the government expected to announce a further delay to some of the customs regulations on goods entering Northern Ireland. Sterling drifted to lows around 1.3830 against the dollar later in the session with a tentative net Euro gain to 0.8580.
Markets will monitor any announcement by Prime Minister Johnson on tax increases to fund social care programmes. Consumer spending evidence was mixed with a slowdown in retail sales, but strong card-spending data according to Barclaycard. Sterling consolidated just above 1.3830 against the dollar on Tuesday.
CHF
Swiss sight deposits declined slightly to CHF714.9bn in the latest week from CHF715.2bn the previous week which did not suggest that the National Bank had been intervening more actively in markets to weaken the Swiss currency.
The franc edged lower on Monday, although overall ranges were narrow. The Euro was unable to break above the 1.0880 level and consolidated around 1.0865 while the dollar secured a slight net advance to 0.9160. There was little change on Tuesday with the dollar drifting just below 0.9150.
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