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The German ZEW economic sentiment index dipped to 26.5 for September from 40.4 the previous month and consensus forecasts of 30.0. The current conditions component strengthened to 31.9 from 29.3, but slightly below market expectations while the Euro-zone sentiment index retreated to 31.1 from 42.7.

Second-quarter Euro-zone GDP was revised to 2.2% from the previous 2.0% estimate with the year-on-year increase at 14.3%.

Latest opinion polls recorded a further dip in support for the CDU/CSU centre-right party, reinforcing political uncertainty ahead of the September 10th Federal Election. Concerns over prolonged uncertainty and instability after the election hampered the Euro to some extent.

There was still an element of caution over Euro selling ahead of Thursday’s Bundesbank policy meeting. The dollar, however, gained support from higher yields on the day and there were also significant losses for commodity currencies which underpinned the US currency.

Overall, the dollar gained net traction and the Euro retreated to 1.1840 after failing to make any further challenge on the 1.1900 area.

There was little change on Wednesday with markets monitoring fresh comments on the economy and monetary policy from Federal Reserve officials. The US currency held firm in early Europe with the Euro edging lower to near 1.1830 despite further caution over selling ahead of Thursday’s ECB policy meeting.




US Treasuries lost ground on Tuesday with the 10-year yield increasing to 7-week highs above 1.38% after the Wall Street open. Higher yields underpinned the dollar and the yen was able to secure only limited support from a retreat in Japanese equities. In this environment, the dollar strengthened to 110.20 after the US open.

Two important US unemployment benefit programmes came to an end on Monday and additional benefit payments also expired. Markets will be monitoring the impact on short-term labour-market trends which could also be important for Federal Reserve policy.

Asian equity markets held steady on Wednesday which curbed currency-market volatility, although there were still reservations over potential Chinese economic reform measures. US bond yields stabilised in Asia on Wednesday which limited the potential for further dollar buying, although overall demand for low-yield currencies remained low. The dollar posted further net gains to just above 110.40 against the yen in early Europe with the Euro around 130.65.




Halifax reported an increase in house prices of 0.7% for August, but the annual increase slowed to 7.1% from 7.6%. Sterling was unable to make any headway ahead of the New York open and gradually drifted lower ahead of the New York open with markets focussing on fiscal policy.

Prime Minister Johnson conformed that there would be an increase in national Insurance rates to 13.25% from 12%. Dividend tax rates will also be increased to help fund increased health spending in the short term and reform social care over the medium term. The announcement increased speculation that higher tax rates would undermine consumer spending and undermine the UK economic recovery which hampered UK currency sentiment.

Bank of England external MPC member Saunders reiterated that the economy no longer needs as much stimulus as previously. He was also concerns that continuing asset purchases when the inflation rate is above 4% could increase medium-term inflation expectations and force a more severe monetary response later.

Sterling was unable to gain significant support from the comments, especially as he noted that only a limited increase in interest rates would be appropriate.

Sterling retreated to lows around 1.3770 against the dollar and the Euro strengthened to 7-week highs at 0.8615 before a fresh retreat back below the 0.8600 level.

The UK currency drifted lower on Wednesday to around 1.3765 against the dollar while the Euro held fractionally below the 0.8600 level.




Swiss National Bank member Maechler stated that prospects for the global economy look good. Swiss currency reserves increased to CHF929bn at the end of August from CHF922bn the previous month which could indicate central bank intervention, although the data is also influenced by valuation considerations.

Higher global bond yields dampened support for the franc, especially with gold prices also retreating sharply and there was also an element of Euro demand ahead of Thursday’s ECB meeting. The dollar posted net gains to near 0.9190 after the New York open while the Euro secured a net advance to around 1.0880.

The franc edged lower on Wednesday with the Euro at 2-month highs at 1.0890 while the dollar tested 0.9200.


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