EUR / USD
The Euro was held in narrow ranges ahead of Thursday’s New York open as it held just above the 1.0150 against the dollar while there was resistance around 1.0200 as markets mulled the outlook for global economies and interest rates. There were still important reservations over the impact of very high gas prices within the Euro-Zone, especially as pressures will intensify ahead of the winter period which will pose important risks to the outlook.
Initial US jobless claims increased slightly to 260,000 in the latest week from 254,000 previously, in line with market expectations and the highest reading since January while continuing claims increased to 1.42mn from 1.37mn previously. The data provided little in the way of fresh evidence on the labour market.
The US trade deficit narrowed to $79.6bn for June from $84.9bn the previous month as imports declined slightly on the month.
The dollar was unable to gain any traction after the New York open and the Euro moved above the 1.0200 level to trade around 1.0240 at the European close. Narrow ranges prevailed on Friday with the dollar unable to regain ground and the Euro settled around 1.0235 as caution dominated.
The latest employment report will be released on Friday with expectations of an increase in non-farm payrolls of around 250,000 with the unemployment rate steady at 3.6%. The overall data, including average earnings, will be important for evidence surrounding underlying growth and inflation trends in the economy.
JPY
US Treasuries secured limited net gains ahead of the New York open with the 10-year yield trading below the 2.70% level. The dollar was unable to make further headway and dipped sharply towards the US open with further losses after the open and a slide to lows just below 133.00 as the yen gained ground on the crosses.
Cleveland Fed President Mester stated that the economy is not in a recession, but the risks have increased and yields were little changed.
Treasury futures were little changed on Friday with markets set to monitor Fed comments after the latest employment reports. Markets remained uneasy over the Taiwan situation with expectations that there will be long-term economic pressure from China which will tend to have a negative impact on the Asian economy.
The dollar dipped to lows just above 132.50 before a recovery to 133.25 at the European open with the Euro around 136.40.
The US will debate the Inflation Reduction Act over the weekend, although Fed rhetoric and yield trends are likely to have a greater impact on markets.
GBP
The UK PMI construction index declined to 48.9 for July from 52.6 the previous month which was below consensus forecasts of 52.0 and the weakest reading since May 2020. New orders did remain in expansion territory, but business confidence remained subdued while cost pressures were the weakest since March 2021.
The Bank of England raised interest rates by 50 basis points to 1.75% which was in line with consensus forecasts and the highest level since late 2008. There was an 8-1 vote with Tenreyro voting for a smaller increase to 1.50%. The bank raised its inflation forecast with a peak now seen above 13% late this year due to the fresh surge in retail energy prices. The bank also downgraded its economic forecasts with GDP seen contracting in 2023 and 2024 with five quarters of negative growth as real disposable incomes is set to decline by the largest amount since records began 1964. Forecasts could, however, be adjusted if there is a strong fiscal stimulus.
The bank noted that uncertainty was exceptionally high and moved away from predictive forward guidance while reiterating that it would take forceful action if needed. The bank forecast that, based on market rates, inflation would be well below target on a 3-year horizon which implied that it considers market expectations are too high.
Bailey stated that all options were open for the September policy meeting. The downbeat forecasts for the economy were also important in underlying sentiment and Sterling declined sharply with lows around 1.2070 against the dollar before a recovery to 1.2150 as the US currency slipped while the Euro rallied to 0.8425.
There was little net change on Friday with Sterling just below 1.2150 against the dollar. Markets will monitor comments from the central bank during the day.
CHF
The Swiss franc was little changed on Thursday with markets tended to consolidate amid further high uncertainty over global developments. The Euro settled around 0.9770 while the dollar was unable to hold above the 0.9600 level.
Markets were monitoring global economic and risk trends with monetary policy trends also important. Overall risk appetite held steady which curbed franc support, while lower global yields limited the scope for further selling pressure on the currency. The Euro edged higher to 0.9790 on Friday with the dollar around 0.9570.
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