EUR / USD
The Euro was unable to make headway in early Europe on Tuesday and selling pressure increased during the day amid fresh concerns over the Euro-Zone gas situation. The EU announced that it had reached a deal on regulation for emergency gas cuts this winter, but there was renewed upward pressure on prices with the European contract hitting fresh 4-month highs. The surge in prices triggered further concerns surrounding the economic outlook which sapped Euro support.
The dollar regained some wider ground and the Euro dipped sharply to below 1.0120 at the New York open.
US consumer confidence declined to 95.7 for July from 98.4 in June which was below consensus forecasts of 97.4 and the lowest reading since February 2021. There was decline in the present conditions index and a small dip in the expectations component with consumers also slightly less confident in the labour market.
New home sales declined sharply to an annual rate of 590,000 for June from a revised 642,000 previously and well below consensus forecasts of 660,000.
The US data maintained important reservations over the US outlook and US yields moved lower, but there was a decline in equities which triggered an element of defensive dollar demand and there was also evidence of month-end corporate buying. The Euro was unable to regain ground, but did find support above 1.0100.
There are strong expectations that the Fed will increase interest rates by a further 75 basis points to 2.50% at Wednesday’s policy meeting. Guidance and rhetoric from Chair Powell is likely to be crucial for exchange rate moves. The Euro recovered to near 1.0150 in early Europe as equities rallied and the dollar drifted lower.
JPY
The dollar was held in relatively tight ranges ahead of Tuesday’s US open with resistance on approach to 136.80 against the yen. The Richmond Fed manufacturing index recovered to zero for July from -11 the previous month and above consensus forecasts of -12. There was a small increase in shipments for the month, but new orders and order backlogs contracted again. Employment growth slowed while skills shortages increased and there was a slight easing of inflation pressures.
The Philadelphia Fed non-manufacturing index retreated to 0.1 from 4.6 previously with a slowdown in employment growth and a slight easing of cost pressures.
Firms were relatively optimistic over their own prospects, but notably less confident over the wider outlook.
US Treasuries posted fresh gains after the weaker than expected data releases with the 10-year yield dipping towards 2.70%. Equity markets moved lower and the yen gained some support, although the main impact was on the crosses rather than against the dollar with the US currency holding close to 136.50.
Risk appetite recovered to some extent on Wednesday with an element of optimism that President Biden set to speak with Chinese counterpart Xi on Thursday and potentially discuss trade. The yen lost ground with the dollar trading around 137.00 against the Japanese currency and the Euro recovered to around 139.00.
GBP
The UK CBI retail sales index recovered marginally to -4 for July from -5 previously and slightly stronger than market expectations of -10. This was, however, the fourth successive decline in sales and retailers expect a further difficult month in August as overall confidence remains depressed.
Overall sentiment towards the UK economic outlook remained weak and markets were less confident that the Bank of England would raise rates by 50 basis points at next week’s policy meeting. Sterling was, however, resilient and global trends tended to dominate during the day. Fears over the Euro-Zone outlook underpinned the UK currency against the Euro, while Sterling was hampered by weaker global risk conditions as equities lost traction.
The Euro dipped sharply to lows near 0.8400 against the Euro while Sterling found support below 1.2000 against the dollar with a quick recovery.
BRC data recorded a 4.4% increase in shop prices in the year to June, the strongest reading since the series started in 2005, maintaining pressure for faster Bank of England rate hikes. Sterling strengthened to just above 1.2050 against the dollar on Wednesday as equities rallied with the Euro holding above 0.8400.
CHF
The Swiss franc gained fresh support during Tuesday, primarily as a function of a loss of confidence in the Euro-Zone outlook. Weaker risk conditions and expectations of nominal currency gains to offset declines in real terms were also important in strengthening the Swiss currency. The Euro came under heavy pressure and posted fresh 7-year lows below 0.9750 while the dollar was unable to make headway despite wider strength.
The franc maintained a strong tone on Wednesday with the dollar trading around 0.9620 ahead of the Fed policy decision.
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