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Euro-Zone second-quarter GDP was revised marginally lower to 0.6% from the flash estimate of 0.7% with a 3.9% annual increase. The Euro was unable to make any headway of Tuesday’s US open and tended to drift lower amid an underlying confidence in the Euro-Zone outlook with a move to just below 1.0150 against the dollar.

US retail sales were unchanged in July after a revised 0.8% increase the previous month and marginally below consensus forecasts. Underlying sales increased 0.4% on the month while the control group recorded a 0.8% increase after a 0.7% gain in July. The data overall eased immediate concerns over retail spending, although the data is not adjusted for prices and there were mixed trends for the month, especially as gasoline prices declined.

The Euro recovered from intra-day lows and traded around 1.0170 ahead of the Federal Reserve minutes with an element of short covering.

Fed minutes stated that some participants noted that the policy rate would have to reach a sufficiently restrictive level to control inflation and remain there for some time. There were also comments that there had been little progress in curbing inflation pressures, although supply-side improvements could help.

Officials, however, saw a slower pace of rate hikes at some point and many officials also saw the hazard that the central bank could tighten more than necessary.

Following the minutes, futures markets priced in around a 60% chance that there would be a 50 basis-point rate hike at the September meeting.

The dollar lost ground following the limited re-pricing with the Euro challenging the 1.0200 level but there was no sustained dollar selling and the Euro was unable to hold gains. There was little change on Thursday with underlying reservations over the Euro-Zone continuing to sap underlying support as it traded around 1.0165.




US Treasuries lost ground ahead of Wednesday’s New York open and maintained a soft tone after the US sales data with the 10-year yield around 2.88%. Higher yields boosted the dollar and there was little evidence of defensive demand for the Japanese currency despite a dip in global equities. Overall yield spreads undermined the yen with the US currency strengthening to a peak just below 135.50.

Treasuries were unable to make any ground after the Fed minutes, although the dollar retreated to near 135.00 with some paring of long positions taken out in anticipation of a hawkish set of Fed minutes. There were no substantive comments on monetary policy from Fed Governor Bowman, but markets will remain on alert for rhetoric from Fed officials with several members due to speak on Thursday.

Treasuries were little changed on Thursday which dampened activity during the Asian session while equity markets tended to lose ground. There were further reservations over the Chinese economic outlook which dampened risk appetite and the dollar traded just above the 135.00 level with the Euro around 137.50.




After jumping on release of the UK inflation data, Sterling was unable to hold the gains and gradually drifted lower. Although there was further speculation that the Bank of England would have tighten monetary policy more aggressively to exert downward pressure on inflation, there were further concerns that underlying inflation differentials would undermine the UK competitive position and trigger long-term depreciation pressure, especially with upward pressure on business costs.

There was also a steeper inversion of the yield curve during the day with the 2-year yield at the highest level since 2008.

Sterling is also correlated strongly with global risk conditions and the overall mood was more defensive during the day with significant losses in equities.

Sterling was unable to hold above 1.2100 against the dollar and dipped to below 1.2050 after the US open while the Euro recovered to 0.8440 after finding support below 0.8400. Sterling remained generally on the defensive with an initial rally after the Fed minutes fading quickly. The UK currency traded around 1.2025 on Thursday with the Euro around 0.8445 with markets still extremely uneasy over the UK economic outlook.




After losses on Tuesday, the Swiss franc retreated further on Wednesday despite less confident global risk conditions. The Euro strengthened to near 0.9700 on the day while the dollar secured a net advance to 0.9540. There was further speculation that the National Bank would look to smooth currency moves and curb further short-term gains, although there were also expectations that the central bank would be looking for medium-term franc gains to prevent real-terms depreciation. The Euro traded around 0.9680 on Thursday with the dollar close to 0.9530.

Technical Levels 




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