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EUR / USD

 

The Euro continued to lose traction ahead of Monday’s New York open with an underlying lack of confidence in the Euro-Zone outlook. The single currency dipped to lows below the 1.0200 level against the dollar before recovering some ground with weaker equities also maintaining an element of US currency demand.

The New York Empire manufacturing index declined very sharply to -31.3 for August from 11.1 previously which was sharply below consensus forecasts of 5.0 and the second-largest monthly decline on record. The new orders component also recorded a very sharp decline to -29.6 from 6.2 previously while there was an even sharper contraction in shipments. There was a further increase in employment, but the rate of increase slowed and the workweek declined.

The prices paid index declined, but prices received increased at a slightly faster pace. In contrast to the headline data, companies were slightly less pessimistic over the 6-month outlook, although confidence was still fragile while prices and costs are expected to increase at a faster pace.

The German Economy Minster stated that the country will have bitter medicine to swallow to make the shift to a new energy model. He added that Russia-dependent model has failed and is not coming back while the gas levy will secure supply and added that relief is needed to help people. There were further concerns that the imposition of the gas levy on households would put further pressure on the German economy.

The Euro briefly recovered ground, but then lost ground again with a slide to around 1.0175 even though commodity currencies rallied against the dollar as a further increase in gas prices sapped Euro support. The Euro tested the 1.0150 level amid net dollar support and settled just above this level on Tuesday.

 

JPY

 

Treasuries were little changed ahead of the New York open, but then posted notable gains after the weaker than expected New York PMI data. The 10-year yield dipped to around 2.78% and lower yields were significant in undermining the dollar with a retreat towards 132.50 against the yen.

The August NAHB housing index declined to 49 from 55 previously and below expectations of 54, maintained evidence of a weaker housing sector, although optimism did attempt to stabilise as mortgage rates declined which provided an element of relief.

Yields recovered from lows and the dollar recovered to the 133.20 area at the European close as equities also attempted to rally which curbed potential yen support. 

Treasury futures were little changed on Tuesday despite a further sharp decline in Chinese holdings of US bonds to the lowest level since May 2010.

There was further speculation that China would provide further economic stimulus, although with no definitive measures at this stage and overall risk conditions were cautious. Equity futures were little changed and the dollar edged higher to just below 133.50 against the yen with the Euro around 135.60.

 

GBP

 

Sterling was unable to make headway on Monday with initial selling amid a weaker tone surrounding risk appetite as equities lost ground. Overall confidence in the UK economy also remained notably fragile which sapped potential support. Markets were continuing to monitor political developments with intense pressure for additional action to ease pressure on households ahead of the scheduled surge in retail energy prices in October. Measures to ease pressure will also have a potentially important impact on Bank of England policies which will tend to amplify Sterling volatility over the next few weeks.

The UK currency did attempt to stabilise later in the day as Wall Street equities attempted to rally, although sentiment remained fragile. Sterling dipped to lows near 1.2050 against the dollar before a tentative recovery to 1.2080 while the Euro was unable to hold gains and registered a net decline to around 0.8425.

The UK jobs data recorded a solid increase in August employment, but vacancies declined on the month.  Headline average earnings increased 5.1% over the year and above expectations of 4.5% while underlying earnings increased 4.7% from 4.3% which will be of concern to the Bank of England, but Sterling was held around 1.2050.

 

CHF

 

Overall Swiss sight deposits increased to CHF751.3bn in the latest week from CHF749.6bn previously and the second successive increase after a series of declines. The net increase suggests the National Bank may have been intervening to curb franc gains.

The Euro, however, was unable to gain support during the day as fears over the Euro-Zone outlook continued to sap support. In this environment, the Euro slipped to fresh 7-year lows around 0.9620 while the dollar secured a limited net advance to 0.9450. There was little changed on Tuesday with the dollar trading around 0.9460.

 

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