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EUR / USD

 

Euro-Zone industrial production declined 2.3% for July after a 1.1% increase previously with an annual decline of 2.4%. EU Commission President von der Leyen stated that the EU had to acknowledge a new realty of higher public debt with proposals for additional spending of EUR140bn for member states to tackle the energy crisis.

ECB council member Villeroy stated that monetary normalisation is fully warranted in the Euro-Zone and those rates could be close to a neutral area of around 2.0% by the end of 2022. Chief Economist Lane stated that interest rates would continue to increase with a generally hawkish stance.

Higher fiscal spending would tend to underpin economic sentiment, although deficit fears could also increase, especially in countries such as Italy.

The Euro managed to stabilise and edge higher into the New York open, but the Euro was unable to hold above parity amid the firm underlying tone.

US producer prices declined 0.1% for August after a revised 0.4% decline the previous month which was in line with expectations with the annual increase slowing to 8.7% from 9.8%. Core prices increased 0.4% and slightly above expectations with the annual increase slowing slightly to 7.3% from 7.7% in July.

The data maintained expectations that pressure from global supply chains was easing, but there were also still important reservations that underlying inflation pressures remained strong which would lead to further monetary tightening over the next few months with the Fed Funds rate expected to peak above 4.0%.

There was still solid underlying dollar support amid expectations that the Federal Reserve would sanction a rate hike of at least 75 basis points at next week’s policy meeting. The dollar edged stronger on Thursday with the Euro trading around 0.9965.

 

JPY

 

The yen posted further gains in early Europe on Wednesday following reports that the Bank of Japan had been checking rates. This would be seen as a pre-cursor to any actual intervention which triggered a fresh unwinding of yen shorts. There was still scepticism that the Bank of Japan would intervene, especially given potential US Treasury opposition. Finance Minister Suzuki stated that the ministry will not pre-announce any intervention in the forex market and stated the government was watching the situation with a sense of urgency. In this environment, the dollar dipped to lows near 142.50 after the New York open.

Treasuries secured marginal gains after heavy losses on Tuesday, but the 10-year held above 3.40% and the 2-year yield was close to 15-year highs which limited any potential dollar selling. In this environment, the dollar recovered back above the 143.00 level.

Japan posted a record trade deficit for August as imports continued to surge with an annual increase of close to 50% on the back of high energy costs and a weak yen.

The monthly Tankan manufacturing index edged lower for September and the services-sector index dipped to a 5-month low of 10 from 19.

A senior LDP official stated that intervention would be limited to stopping steeper yen falls which dampened expectations that there would be any effort to strengthen the Japanese currency. The dollar secured a net advance to 143.60 against the yen in early Europe as yen sentiment remained negative on yield spreads.

 

GBP

 

Sterling briefly dipped lower after the UK headline inflation data came in weaker than expected, although the overall impact was measured. There was a limited element of optimism that a lower inflation peak due to the energy price cap would improve the UK fundamental outlook. There was also an element of short covering ahead of next week’s Bank of England policy meeting with markets expecting a further rate increase of at least 50 basis points.

Risk appetite attempted to stabilise, although overall confidence remained extremely fragile. After finding support below 1.1500 against the dollar, Sterling rallied to highs near 1.1590, but was unable to hold the gains and drifted to around 1.1550. The Euro retreated to near 0.8625 before a recovery to 0.8645.

Sterling drifted lower to near 1.1500 against the dollar in early Europe on Thursday as global developments dominated and UK sentiment remained fragile.

 

CHF

 

The Euro dipped to lows near 0.9580 against the franc on Wednesday before rallying to 0.9610 later in the day while the dollar posted a net gains to 0.9625.

The franc was resilient despite positive developments in the Ukraine and additional fiscal support for EU countries.

Overall risk appetite remained vulnerable which limited any potential franc selling. Markets also expect that the National Bank will raise interest rates further at next week’s policy meeting which underpinned underlying franc demand. The dollar edged higher to 0.9635 against the franc in early Europe on Thursday.

 

Technical Levels 

150922 Tech

Calendar 

150922 Cal

Contents

Disclaimer

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