EUR / USD
The headline Euro-Zone consumer prices inflation rate increased to a fresh record high of 8.9% for July from 8.6% previously and above consensus forecasts of 8.7%. The underlying rate increased to 4.0% from 3.7% and slightly above expectations of 3.9%.
GDP data was stronger than expected with a flash growth estimate of 0.7% for the second quarter after an upwardly-revised 0.6% increase for the previous three months. The Euro held a firm tone into the US open, but hit selling interest on approach to 1.0250 against the dollar with no support from the data.
The US PCE prices index increased 1.0% for June with an annual rate of 6.8% from 6.3% previously. The core rate increased 0.6% on the month with the year-on-year rate of 4.8% slightly above the previous figure and market expectations of 4.7%.
The higher than expected reading triggered renewed concerns over inflation trends and reversed the sentiment that had been building after the Fed policy decision and weaker than expected GDP data. There fresh concerns that the Federal Reserve would have to be more aggressive in tightening monetary policy which triggered renewed dollar demand. The final reading of the University of Michigan consumer confidence index was revised to 51.5 from the flash reading of 51.1 with a recovery in the current conditions component. The 5-year inflation expectations index was revised slightly higher to 2.9% from the flash reading of 2.8%.
After dipping to lows near 1.2150, the Euro recovered to 1.0225 as the US dollar lost ground and global equites rallied.
CFTC data recorded a small decline in long dollar positions for the latest week and the US currency failed to regain ground on Monday with the Euro around 1.0220.
After a slide to 132.50, the dollar recovered some ground after Friday’s European open. Treasuries also dipped after the US PCE prices index with higher US yields helping to drive a further dollar recovery to highs at 134.50. Wall Street gains limited potential support for the Japanese currency, but bond yields dipped lower again late in the session with the dollar sliding again to lows around 133.20. Fed Governor Waller stated that a soft landing is a plausible outcome in the US labour market.
China’s PMI manufacturing index dipped to 49.0 for July from 50.2 previously and below expectations of 50.4. The non-manufacturing index also retreated to 53.8 from 54.7 and in line with expectations. The data maintained some reservations surrounding the Chinese outlook which will also hamper the global economy
Minneapolis Fed President Kashkari stated that the Fed is a long way from achieving 2% inflation and Fed rhetoric will continue to be monitored closely.
Chinese data remained disappointing with the Caixin PMI manufacturing index at 50.4 for July from 51.7 previously and below expectations of 51.5. There was a sharper decline in employment while inflation pressures also eased on the month. The data was significant in capping risk appetite during the Asian session.
US yields remained broadly lower in Asia with further short covering of yen shorts and the dollar slipped sharply to lows near 132.00 before a recovery to above 132.50.
UK mortgage approvals declined to 63,700 for June from a revised 65,700 previously and slightly below consensus forecasts with the lowest reading since June 2020. There was, however, a stronger than expected increase in consumer credit with the strongest increase since May 2019 and overall personal lending remained firm at £7.1bn from £8.9bn the previous month. Sterling was unable to draw any support from the data and lost ground during the day with some fears that higher borrowing reflected difficulties in meeting commitments. Sterling dipped to lows just below 1.2065 against the dollar after the US data, but there was a sharp rally into the London fix as the dollar posted a wider rapid retreat. The UK currency rallied back to the 1.2170 area while the Euro rallied to the 0.8400 area.
CFTC data recorded a small net decline in short Sterling positions in the latest week and there will be some pressure to cover shorts into Thursday’s Bank of England policy decision. Sterling traded below 1.2200 against the dollar on Monday with the Euro just below 0.8395.
The Swiss KOF business confidence index dipped sharply to 90.1 for July from a revised 95.2 previously and well below consensus forecasts. The franc maintained a firm underlying tone during the day with markets maintaining fears surrounding energy prices and the Euro-Zone outlook.
The Euro was unable to make headway during the day while the dollar hit resistance just below 0.9600 and retreated to 0.9515.
The Euro edged higher on Monday with the dollar again holding just above the 0.9500 level.