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EUR / USD

 

ECB President Lagarde stated that the central bank will move gradually on raising interest rates if there’s uncertainty over the outlook, but with the option to act decisively on any deterioration in medium-term inflation, especially if there is a de-anchoring of inflation expectation. She added that the bank would act in a determined and sustained manner to tackle record inflation. The Euro struggled to gain support against the dollar, but did make limited headway on the crosses.

US consumer confidence dipped to 98.7 for June from 103.2 the previous month which was below expectations of 100.0 and the lowest reading since February 2021. There was a marginal decline in the current conditions index while there was a sharper retreat in the expectations component to the lowest level since March 2013 with increased concerns over the implications of high inflation. Consumers were still confident over the labour market, but expected conditions would deteriorate.

The Richmond Fed manufacturing index dipped sharply to -19 for June from -9 previously and weaker than consensus forecasts of -4. There was also a very sharp decline in the reading for new orders while order backlogs continued to decline. There were still strong labour-market readings while inflation indices were mixed as cost pressures eased slightly, but prices received at a stronger pace on the month.

There was some evidence of corporate dollar buying on month-end grounds and models have tended to indicate that there will be net dollar buying over the next 36 hours. The dollar posted significant net gains with the Euro retreating to lows near 1.0500 before a limited rebound.

The Euro was unable to gain sustained support and was close to 1.0500 on Wednesday ahead of the latest German inflation data as the dollar maintained a firm tone.

 

JPY

 

US Treasuries dipped lower ahead of Tuesday’s New York open with the 10-year yield increasing to just above 3.25%. There was, however, a recovery in prices after the weaker than expected US data and the 10-year yield dipped below 3.20%. The dollar, however, maintained a strong tone during the day and traded above 136.0 at the European close as the yen failed to gain sustained support despite fresh losses in equity markets.

The US recorded a $104.3bn trade deficit or May after a $105.9bn shortfall the previous month with a further rebound in exports. The data suggests that trade will make a positive contribution to GDP for the first time in nearly two years which should provide an element of dollar support.

New York Fed President Williams stated that the central bank needed to get real interest rates above zero and that it is reasonable to get to a Fed Funds rate of 3.50-4.00%. At this stage, policy needs to be somewhat restrictive next year, although he added that the data may tell us something different.

As far as the July rate decision is concerned, the debate will be between a 50 and 75 basis-point hike. Given that futures markets are pricing in a peak around 3.6%, the overall impact was limited with the dollar holding above 136.00. US yields drifted lower on Wednesday with the dollar consolidating below 135.80.

 

GBP

 

Sterling was unable to make any headway after Tuesday’s European open and gradually lost ground during the day.  Although equity markets opened higher, there was a gradual deterioration in risk conditions with US equites moving into negative territory. The dip in confidence was significant in curbing Pound support.

Scottish First Minister Sturgeon stated that the government will publish an independence referendum bill that will be consultative with the a proposed vote in October next year. Sturgeon also stated that the UK Supreme Court will be asked to rule on whether a referendum vote would be legal without approval from the UK government.

Although there are significant hurdles to overcome before any referendum, there will be increased uncertainty which also tended to curb Sterling support, especially with Brexit concerns. The UK currency dipped below 1.2200 against the dollar amid an underlying lack of confidence with limited net Euro gains to around 0.8640.

BRC shop prices increased 3.1% in the year to June and the highest reading since 2008 with Sterling able to hold close to 1.2200 in early Europe on Wednesday.

 

CHF

 

The Swiss franc posted renewed gains on Tuesday as weaker risk appetite helped underpin the currency. Underlying concerns over a weaker global growth outlook also underpinned the currency. The Euro dipped to lows around 1.0070 during the day while the dollar settled around 0.9560.

There will be some nerves over potential National Bank intervention if the Euro dips close to the parity level, but overall franc sentiment remained robust. The franc maintained a firm tone on Wednesday with the Euro close to 1.0050 and the dollar around 0.9570.

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Disclaimer

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