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Daily FX Report

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EUR / USD

 

The Euro was unable to make headway ahead of Monday’s New York open with the currency again undermined by a wider lack of confidence in the Euro-Zone outlook amid fears over gas supplies. There were also further doubts whether the ECB would be able to push ahead with significant rate hikes given pressure on growth.

Although trading conditions were initially subdued as is often the case on the Monday after the US employment report, the Euro continued to grind lower.

The dollar was supported by expectations of aggressive Federal Reserve hikes and concerns over tightening financial conditions. There was also speculation over a strong US consumer prices reading this week which would reinforce pressure for aggressive Fed rate hikes and tend to undermine risk appetite.

The latest New York Fed survey recorded an increase in 1-year inflation expectations to 6.9% from 6.6%, but 3-year expectations declined to 3.6% from 3.9%. Consumers overall were less confident in the labour market. Kansas City Fed President George stated that the speed at interest rates increase is an open question. The pace needs to be balanced carefully against the state of the economy and financial markets while moving too fast would risk over-steering.

The Euro dipped to lows just above 1.0050 after the New York open as the dollar maintained strong tone, but there were some reservations over selling the Euro more aggressively, especially with some speculation that the ECB could express reservations over a weak currency.

The Euro was, however, unable to gain sustained relief and dipped to lows at 1.0035 later in the day. There was no change in tone on Tuesday with markets fretting over European gas supplies and the threat of an elevated US consumer prices reading. The Euro dipped to fresh 19-year lows very close to parity before stabilising.

 

JPY

 

China’s new loans increased by CNY2810bn for June from CNY1890bn the previous month and above consensus forecasts of CNY2400bn. Overall social financing also increased by CNY5170bn from CNY2790 previously and also well above market expectations. The data maintained an element of optimism that the Chinese authorities will provide strong financial support. There were, however, further banking-sector concerns amid evidence that some small banks had frozen deposits.

The yen remained under pressure ahead of Monday’s New York open with the Japanese currency undermined by expectations that the Bank of Japan would maintain an extremely accommodate monetary policy. Overall yield spreads were also significant in hurting the Japanese currency with only a slight net correction.

The US employment trends index strengthened to 119.38 for June from 118.86, but the May reading was revised sharply lower from the original reading of 119.77.

The dollar maintained a strong tone and posted fresh 23-year highs at 137.75 before a correction into the European close.

There were further reservations over Chinese coronavirus trends which sapped risk appetite in Asia. There were warnings over yen weakness from Finance Ministry Suzuki who stated that FX rates would be monitored with a sense of urgency, but the yen failed to secure more than a very limited recovery and traded around 137.30.

 

GBP

 

Sterling was unable to make any headway on Monday as a more fragile tone surrounding risk appetite sapped support and domestic economic reservations persisted.

The Conservative Party leadership candidates continued to campaign on the basis of tax cuts which could give the Bank of England greater scope for raise interest rates, but the overall impact of potential fiscal policy changes was seen as limited. The 1922 committee confirmed that the first round of voting will take place on Wednesday after nominations close on Tuesday with the aim to declare a new Prime Minister on September 5th.

Sterling retreated to fresh 2-year lows just below 1.1870 before a slight recovery into the European close while the Euro again edged higher.

BRC data recorded a 1.3% decline in like-for-like retail sales for June with a sharper decline in volumes. Barclaycard reported higher consumer spending, but this was focussed on a surge in spending on utilities Risk appetite remained fragile in Asia and Sterling traded at 2-year lows just above 1.1860 with the Euro around 0.8440.

 

CHF

 

The latest data recorded a decline in total Swiss sight deposits to CHF745.0bn from CHF748.5bn the previous week and domestic sight deposits declined sharply for the second successive week. The data overall again suggested that the National Bank had not been intervening to weaken the Swiss currency.

After brief respite at the end of last week, the Euro dipped sharply again to 0.9870 while the dollar posted net gains to 0.9830.

The franc maintained a firm underlying tone on Tuesday with the dollar trading around 0.9840 as global risk conditions remained fragile.

 

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Disclaimer

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A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

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