EUR / USD
ECB council member Holzmann stated that PEPP bond purchases should end next year if economic conditions remain favourable. The overall impact was limited as it added little to the rhetoric from Thursday’s policy meeting. Narrow ranges prevailed ahead of New York as markets looked for fresh incentives.
US producer prices increased 0.7% for August, slightly above consensus forecasts of 0.6% with a year-on-year increase of 8.3% from 7.8% previously. Core prices increased 0.6% on the month with an annual increase of 6.7% from 6.2% previously. The maintained underlying concerns over inflationary pressures, although the overall market impact was limited ahead of Tuesday’s CPI inflation report.
Cleveland Fed President Mester stated that both sides of the substantial progress test have been met and that she would prefer to begin the tapering process this year. The rhetoric had little overall impact with equity markets having a significant impact. The dollar gained fresh support later in the day as risk appetite dipped towards the European close. Commodity currencies moved lower and the Euro retreated to near 1.1810.
CFTC data recorded a re-building of long Euro positions to over 26,000 contracts in the latest week from around 10,500 previously.
Over the weekend, Philadelphia Fed President Harker stated that the tapering of asset purchases should start as soon as possible and hopefully this year. There should be no further commentary on monetary policy this week with the blackout period in operation ahead of next week’s policy statement.
The dollar maintained a firm tone on Monday with the Euro dipping below the 1.1800 level as commodity currencies also failed to regain ground.
Chinese new loans increased CNY1220bn for August from CNY1080bn previously, but slightly below consensus forecasts. There was, however, a stronger increase in total social financing of CNY2960bn from CNY1060bn previously and above market expectations. M3 money supply growth slowed to 8.2% from 8.3% previously.
There were reports that the Bank of Japan will warn of mounting risks to exports and output from supply bottlenecks.
Risk appetite held steady ahead of the New York open, but then dipped following reports that the US could pursue a trade investigation against China. After a firm opening, Wall Street equities moved significantly lower which helped underpin the Japanese currency. US bond yields edged higher with the 10-year rate around 1.34%, but the dollar was held below the 110.00 level as both currencies secured an element of defensive demand.
CFTC data recorded a small decline in short yen positions to 62,300 contracts from 63,100 previously, but this still indicates scope for notable position adjustment and yen buying if there is a slide in risk appetite and sustained pressure on equity markets. The yen was unable to make headway during the Asian session.
The dollar edged higher on Monday and traded just above the 110.00 level while the Euro retreated to around 129.80 with risk conditions still relatively fragile.
Sterling edged lower following the weaker than expected GDP data, but the currency was resilient and regained ground ahead of the New York open. Overall yield trends continued to provide an element of support for the UK currency, especially with expectations that the Federal Reserve and ECB would maintain accommodative policies. Sterling pushed to a high near 1.3890 against the dollar, but then faded later in the day as risk appetite turned less favourable. The Euro also recovered from fresh 3-week lows near 0.8520 to trade around 0.8540.
CFTC data recorded a renewed increase in short Sterling positions to 24,500 contracts in the latest week from just below 15,000 previously and the largest short position since the end of July 2020 which suggested that global confidence in the UK currency remained fragile.
Sterling drifted lower to around 1.3825 against the dollar on Monday with the Euro little changed around 0.8535 ahead of important data releases this week.
There was a slight retreat in the Swiss franc ahead of Friday’s New York open with the Euro nudging above the 1.0850 level while the dollar held little changed. The franc was unable to secure fresh support despite weaker risk conditions.
Overall, the Euro settled little changed around 1.0840 with the dollar posting slight gains to 0.9175. Over the weekend, National Bank member Zurbruegg reiterated that negative interest rates are still required to prevent a strengthening franc. The dollar secured limited gains to just below 0.9200 on Monday with little change for the Euro.