ECB member Lane also issued a coded warning over the impact on Euro strength.
The dollar remained under sustained pressure during Tuesday with EUR/USD hitting the 1.2000 level. There was a significant correction later in the day following stronger than expected US manufacturing data.
ECB member Lane also issued a coded warning over the impact on Euro strength with EUR/USD dipping to near 1.1900.
Sterling maintained a firm tone, but GBP/USD backed away from intra-day 8-month highs. Commodity currencies retreated from daily highs with weaker than expected GDP data also curbing AUD support.
There was a downward revision to the final German manufacturing PMI index and the Spanish index was marginally below 50.0, although the overall Euro-zone reading was unchanged from the flash reading at 51.7. German unemployment declined 9,000 compared with market expectations of a slight increase.
The Euro-zone headline inflation rate declined to -0.2% for August from 0.4% the previous month. This was well below consensus forecasts of 0.2% and the first negative reading since May 2016. The core rate declined sharply to 0.4% from 1.2% and well below market expectations of 0.9%. The weak inflation data will increase pressure for additional monetary stimulus by the ECB. Despite these concerns, the Euro maintained a strong tone with EUR/USD testing the important 1.2000 area.
The US PMI manufacturing index was revised down to 53.1 from the flash reading of 53.6. The ISM manufacturing index strengthened to 56.0 for August from 54.2 previously and above consensus forecasts of 54.5. There was a stronger increase for new orders with order backlogs also increasing. Prices increased at a faster rate and there was an increase in the employment component, although the data still indicated a further decline in manufacturing payrolls.
Fed Governor Brainard stated that economic risks were tilted to the downside. Inflation was below target and that it would take time to raise the rate. She also noted that it was important for the Fed to move to accommodation from stabilisation in coming months and the rhetoric continued to imply a very loose monetary policy.
The dollar gained some support following the ISM data with EUR/USD also stumbling after failing to secure a brief break above the 1.2000 level. ECB chief economist Lane stated that the Euro rate does matter for monetary policy as the currency level feeds through into economic models. Markets were wary over the potential for more aggressive verbal warnings against Euro strength which helped pull the currency lower and amplified pressure for a correction after very sharp gains.
EUR/USD dipped to the 1.1900 area and was held close to this level on Wednesday with markets also monitoring US jobs data later in the day.
The dollar was held in tight ranges ahead of the US data releases on Tuesday with support above the 105.50 level. US equities briefly dipped lower after the Wall Street open, but the dollar gained some wider traction and USD/JPY advanced to the 106.00 area.
There was no sign of progress on a US fiscal stimulus plan with House Speaker Pelosi stating that there are serious differences between the two sides. There will, however, be further efforts to find a resolution over the next week with rhetoric watched closely and US yields edged lower.
Bank of Japan member Wakatabe stated that the central bank will take additional easing steps without hesitation if needed. The LDP leadership election will be held on September 14th. Markets will monitor whether Ishiba, who has criticised Bank of Japan policies, can make any headway in the ballot. The yen was little changed on the crosses and equities made limited headway with USD/JPY fractionally above the 106.00 level in early Europe.
The UK PMI manufacturing index was revised marginally lower to 55.2 from the flash reading of 55.3. Consumer credit growth resumed for July while there was a further sharp increase in mortgage approvals for the month to 66,300 from just below 40,000 in June. Mortgage lending increased to £2.7bn for July from £2.4bn in June, although this was still well below the average of £4.2bn in the six months prior to lockdown.
Sterling maintained a strong tone during the day with a GBP/USD peak at fresh 8-month highs around 1.3480 while GBP/EUR rallied above 1.1200. The UK currency gained support from expectations of very supportive monetary policies by the major global central banks. There was a correction later in the session, primarily due to a tentative dollar recovery, as fundamental reservations continued to have only a limited impact.
|07:00||GBP Nationwide House Prices (Y/Y)(AUG)||2.00%||1.50%|
|07:00||EUR German Retail Sales (Y/Y)(JUL)||3.00%||6.70%|
|07:00||EUR German Retail Sales (M/M)(JUL)||0.50%||-1.90%|
|07:00||GBP Nationwide House Prices (M/M)(AUG)||0.50%||1.80%|
|12:00||USD MBA Mortgage Applications||-||-6.50%|
|13:15||USD ADP Employment Change(AUG)||-||167K|
|15:00||USD Factory Orders(JUL)||5.00%||6.20%|
|15:00||FOMC member John C. Williams speech||-||-|
|15:30||USD Crude Oil Inventories||-1.950M||-4.689M|
|15:30||GBP BoE Ben Broadbent Speech||-||-|
|17:00||FOMC Member Mester Speaks||-||-|
|23:30||AiG Construction Index(AUG)||-||42.7|