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EUR / USD

 

The Euro remained under pressure ahead of Monday’s US open with a further lack of confidence in the Euro-Zone economy. The immediate focus remained on gas supplies and prices following an announcement from Russia that gas supplies through the Nord-Stream 1 pipeline would be suspended for three days  from August 31st. Russia also announced that supplies thereafter would continue at 20% of normal levels. Following the announcement, there was a fresh surge in gas prices to a new record high in Europe with particular fears over the German outlook. An outrage at a key French nuclear plant also contributed to the spike in energy prices.

The Euro continued to lose ground and dipped to test the parity level ahead of the New York open with the dollar also gaining net defensive support as equities dipped.

In its latest monthly report, the Bundesbank stated that a recession is increasingly likely with a high degree of uncertainty over gas prices and sharp increases in prices likely to weigh heavily on households and companies. The bank also stated that inflation will continue to accelerate and could peak above 10% this autumn.

After a period of hesitation, the Euro lost further ground after the New York open with a slide to 19-year lows just below the 0.9930 level against the US dollar. Equities also continued to move lower which undermined commodity currencies and triggered renewed defensive demand for the US currency.

The Euro was unable to make any recovery and settled around 0.9935 late in the day and drifted lower to fresh 19-year lows at 0.9920 in early Europe on Tuesday. The latest PMI business confidence data will be released during the day with markets expecting further deterioration for the Euro-Zone. A sharp decline for the Euro area would reinforce fears over the outlook and tend to maintain pressure on the Euro. The latest US services PMI data will also be significant for US confidence.

 

JPY

 

The US Chicago Fed national activity index strengthened to 0.27 for July from a revised -0.25 the previous month which suggested that the overall data flow improved for the month, although the impact was very limited given that markets are focussed on the outlook.

US Treasuries continued to lose ground after Monday’s New York open with further concerns over underlying inflation trends. The latest market indicator of US inflation expectations also posted a 9-week high amid expectations of persistent inflation which maintained fears that the Fed would be forced into a more aggressive stance.

The 10-year yield pushed above the 3.00% level which contributed to fresh dollar demand, although the yen did secure an element of defensive support as equities moved lower. The dollar was unable to hold above the 137.50 level against the Japanese currency as the yen gained on the crosses.

Japan’s PMI manufacturing index retreated to a 19-month low of 51.0 for August from 52.1 the previous month while the services-sector release dipped into contraction.

Risk appetite remained fragile, but speculation over further Chinese monetary easing provided an element of support with the dollar around 137.30 from 137.70 highs.

 

GBP

 

Following Russia’s announcement that supplies through the Nord-Stream pipeline would be suspended for three days at the end of August, there was a fresh surge in gas prices with UK futures hitting a fresh record high. The surge in prices will put further upward pressure on the overall wholesale price of energy and there will also be expectations of an even steeper increase in retail and business energy prices which will inevitably have important ramifications.

In this context, there were further fears over the UK economic outlook and intense pressure for the government to take additional action to cushion the impact.

As the dollar gained further ground and the Euro came under sustained pressure, Sterling dipped to fresh 2-year lows just below 1.1750 against the dollar. The Euro, however, dipped to just below 0.8450 against the UK currency as Euro-Zone fears intensified.

There was little change on Tuesday with Sterling just below 1.1750 against the dollar. The latest PMI business confidence data will be released on Tuesday with Sterling sentiment liable to dip again if there is a dip into contraction territory for manufacturing or services while there be some relief if sentiment manages to hold steady.

 

CHF

 

Overall Swiss sight deposits increased to CHF752.8bn in the latest week from CHF751.3bn the previous week which suggested that there had been only limited National Bank intervention to curb franc strength during the latest reporting period. Markets expect a further central bank rate hike at the September policy meeting.

The Swiss franc was able to gain net support from weaker risk conditions during the day with the Euro sliding to below 0.9600 against the franc. The dollar did post net gains to above 0.9650 amid wider gains. The franc held firm on Tuesday as fragile risk sentiment continued to curb any franc selling interest.

 

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Disclaimer

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