EUR / USD
The Euro lost ground ahead of Thursday’s New York open and dipped below 1.0400 against the dollar with a reversal of US losses seen after the Fed meeting.
US initial jobless claims declined slightly to 229,000 in the latest week from a revised 232,000 previously, but above consensus forecasts of 215,000 while continuing claims were unchanged at 1.31mn. The Philadelphia Fed manufacturing survey dipped to -3.3 for June from 2.6 previously and below market expectations of 5.5. There was a sharp dip in new orders into contraction territory with unfilled orders also declining while employment increased at a much slower rate. There was a slight easing of upward pressure on prices while companies were less optimistic over the outlook which maintained some doubts over US growth trends.
There was very choppy trading after the US open with central bank decisions and risk trends leading to sharp moves across asset classes.
German bond yields increased sharply with the 10-year yield above 1.80% which underpinned the Euro. The dollar also dipped sharply after the New York open with volatile trading and a sharp scaling back in long dollar positions. As US selling gathered pace, the Euro surged to highs at 1.0600 on stop-loss buying before a correction to 1.0550. The dollar was able to regain some further ground on Friday as the rout in long positions faded and the Euro retreated to around 1.0515.
JPY
US May housing starts dipped sharply to an annual rate of 1.55mn from 1.81mn previously and well below consensus forecasts of 1.70mn while building permits slowed to 1.70mn from 1.82mn. The data reinforced Fed Chair Powell’s narrative of a softening housing market.
Treasuries initially lost ground with the 10-year yield increasing to fresh 10-year highs near 3.50%, but yields reversed as Wall Street equities moved sharply lower. The yen posted strong gains with markets taking fright that the Bank of Japan could tighten monetary policy following the surprise Swiss National Bank move.
Treasuries continued to post strong gains towards the European close with fears over the US growth outlook triggering a sharp decline 10-year yields to below 3.25%. In this environment, the dollar dipped further to lows at 131.50 before a recovery to 132.00.
In the event, the Bank of Japan made no changes to monetary policy at the latest meeting with interest rates held at -0.1% with a cap on the 10-year bond at 0.25%. The unchanged policy triggered a fresh rush of yen selling with the dollar peaking just above 134.50. Finance Minister Suzuki stated that FX markets were being watched with even more urgency, but with no evidence of intervention at this stage. There was a limited dollar correction to just below 134.00 with the Euro around 140.80.
GBP
The Bank of England increased interest rates by 25 basis points to 1.25% at the latest policy meeting which was in line with consensus forecasts. This was the fifth successive increase and the highest rate since early 2009. There was again a 6-3 vote as Haskel, Mann and Saunders voted for a 50 basis-point increase. The bank warned that inflation was likely to be above 11% later in the year as retail energy prices increase again and downgraded the growth outlook. It also stated that it would be forceful in combatting inflation with the scale, pace and timing of future hikes depending on their assessment of conditions. Money-market rates moved higher on speculation over a faster pace of rate hikes and gilt yields also increased after the release. Sterling initially dipped sharply with lows below 1.2050 against the dollar, but the hawkish guidance, higher money-market yields and short covering triggered a sharp turnaround.
Confidence in the UK outlook remained weak with the latest ONS data indicating a sharp downturn in credit and debit card purchases in the latest week.
Sterling continued to gain from short covering and the move gathered pace as wider dollar selling took hold. Overall, Sterling surged to highs at 1.2400 against the dollar before a correction while the Euro posted net losses to below 0.8550. There was a retreat to below 1.2300 against the dollar on Friday as volatility remained elevated.
CHF
The Swiss National Bank increased interest rates by 50 basis points to -0.25% at the latest policy meeting, contrary to consensus forecasts of unchanged rates at this meeting. The bank warned that inflation would be even higher without policy action and the central bank also dropped comments that the Swiss currency was overvalued due to recent losses. The franc jumped higher after the unexpected decision with weaker equity markets also contributing to defensive demand.
The Euro slumped to lows below 1.0150 against the franc before a limited recovery while the dollar collapsed to lows below 0.9650.
The single currency consolidated around 1.0200 against the franc on Friday with the dollar just below the 0.9700 level.
Technical Levels
