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German industrial production increased 0.2% for May after a 1.3% increase the previous month, but slightly below market expectations with a weak overall outlook.

Minutes from the June’s ECB policy meeting stated that a large initial rate hike would risk causing an excessive market reaction, but chief economist Lane stated that he saw no need to postpone the big rate hike until September which maintained a high degree of uncertainty over the July policy decision.

There was further uncertainty over peripheral bond markets with the new anti-fragmentation tool potentially not ready for the July meeting and the Euro retreated.

US initial jobless claims increased to 235,000 in the latest week from 231,000 previously and slightly above consensus forecasts of 230,000 while continuing claims increased to 1.38mn from 1.32mn previously. The Challenger jobs data recorded over 32,000 layoffs for June, an increase of 59% over the year.

The May trade deficit narrowed to $85.5bn from $86.7bn previously as exports increased to a record high and at a faster pace than imports on the month.

The Euro overall was unable to generate a significant recovery during the day with selling interest above the 1.0220 level as the dollar maintained a firm overall tone. Overall, the Euro dipped to lows just below 1.0150. Rhetoric from ECB and Federal Reserve officials will continue to be monitored closely in the short term. The Euro was again unable to hold gains on Friday and tested fresh 19-year lows below 1.0150 as markets continued to focus on a potential challenge on parity.


Although there was choppy trading in Treasuries on Thursday, there were net losses with the 10-year yield increasing to 2.97% in Europe. Higher US yields provided an element of dollar support and firmer risk appetite limited yen support, although it was unable to hold above the 136.0 against the Japanese currency.

Confidence in the Chinese economy remained fragile with reports that high-frequency data suggesting that the economy contracted in the second quarter, although markets expect that the official data due next week will report a slight expansion for the quarter.

The yen strengthened in Asia on Friday following news that former Prime Minister Abe had been shot ahead of upper-house elections this weekend. Later reports indicated that Abe was dead which maintained defensive demand for the Japanese currency and the dollar dipped to lows around 135.35 before a limited recovery.

The latest US jobs data will be released on Friday with consensus forecasts that non-farm payrolls will increase around 275,000 for June. A strong report would tend to put upward pressure on yields and strengthen expectations of a hawkish Fed rate hike at the July meeting which would potentially support the US currency. 


After the European open on Thursday, Prime Minster Johnson announced that he would resign as Conservative Party leader. He intends to stay in office in a caretaker role, although there is an important element of uncertainty over the timetable. An ending of immediate uncertainty provided an element of Sterling relief 

Bank of England external MPC member Mann stated that there were very high UK inflation expectations over a 1-year horizon and that the decision-makers panel survey recorded that firms expect to increase prices 6.3% over the next year, well above the 2% inflation target.

She added that the labour market is tight and boosting wages while it was doubtful whether strong labour demand was enough to bring people back into the workforce. She also noted that the inflation base in broadening and that the bank needs heightened awareness of the Pound’s inflation role.

The hawkish rhetoric provide some Sterling support, although Mann had already backed a 50 basis-point rate hike for July which lessened the impact.

An improved tone surrounding risk appetite also provided an element of relief for the UK currency. Confidence in the UK outlook remained weak, although the latest data indicated that consumer activity increased in late June. Overall, Sterling edged higher to just above 1.2000 against the dollar while the Euro dipped to 6-week lows around 0.8450. Sterling held just above 1.2000 on Friday with markets continuing to monitor domestic political developments and global risk appetite.


The Swiss franc lost some ground on Thursday as overall risk appetite managed to stage a tentative recovery, but overall franc demand remained firm. The Euro edged above the 0.9900 level before drifting lower amid wider selling pressure. The dollar posted net gains to above 0.9700 amid the firm overall US currency.

The franc continued to gain net support from a lack of confidence in the Euro-Zone outlook and concerns over the risk of fragmentation in the Euro bond markets.

The dollar advanced to near 0.9750 on Friday with expectations that inflation differentials would underpin the franc over the longer term.

Technical Levels



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