Markets expect 50 basis-point BoE rate hike.

The US ISM non-manufacturing index strengthened to 56.7 for July from 55.3 the previous month and well above consensus forecasts of 53.5. There was a stronger rate of growth in business activity and a stronger rate of increase in new orders. The employment sector remained in contraction for the month, but inventories edged lower.

The prices index declined by the largest amount for over 5 years and registered the weakest reading since March 2021.

San Francisco Fed President Daly reiterated the hawkish stance with comments that the central bank has not completed the fight against high inflation. She added that markets are getting ahead of themselves in pricing in rate cuts for 2023.

As far as rate decisions are concerned, she sees a 50 basis-point rate hike as likely in September, but it could be 75 basis points if the Fed sees inflation roaring ahead.

Minneapolis Head Kashkari stated that a cut in rates in 2023 was very unlikely.

The 10-year bond yield increased to a peak at 2.83% before a retreat to 2.75% later in the session. There was a further net retreat in yields on Thursday as it traded around 2.72% while the yield curve inversion deepened.

Swiss consumer prices were unchanged for July compared with consensus forecasts of a 0.1% decline, although the year-on-year rate was unchanged at 3.4% and slightly below market expectations.

The Swiss franc steadily lost ground during the day with a dip in expectations that the National Bank would decide on any intra-meeting move to raise interest rates.

The Bank of England will announce its interest rate decision and release the latest Monetary Policy Report on Thursday.

Consensus forecasts are for a further increase of 50 basis points to 1.75% with the minority backing a 25 basis-point increase. Forward guidance from the bank will be very important for market reaction.

The Euro-Zone PMI manufacturing services index was revised higher to 51.2 in July’s final reading from the flash reading of 50.6. There was a stronger than expected reading for Spanish figure, but Italian services dipped into contraction territory.

European gas prices were little changed on the day. Higher yields boosted the dollar, although both retreated from intra-day highs. EUR/USD dipped to lows at 1.0125 before a recovery to 1.0165 on Thursday.

Markets remained uneasy over the Taiwan situation as Chinese live exercises started. Volatile USD/JPY trading continued with a peak at 134.50 before a dip to 133.50 and consolidation close to 134.00 on Thursday.

The Swiss franc retreated after the latest domestic inflation data. EUR/CHF rallied to 0.9770 with USD/CHF gains to a peak at 0.9650 before a retreat to 0.9610.

Sterling lost ground with pressure for short covering fading, although solid risk conditions provided some protection. GBP/USD dipped to 1.2100 before a recovery to around 1.2150 on Thursday while GBP/EUR drifted lower to 1.1940.

AUD/USD found support below 0.6900 and rallied to just above 0.6950 on Thursday as US yields retreated. The Canadian dollar was hampered by a dip in oil prices and USD/CAD settled around 1.2840.

Economic Calendar

07:00German Factory Orders (M/M)(JUN)-0.60%0.10%
08:30EUR Markit Germany Construction PMI (JUL)45.9
09:30GBP PMI Construction(JUL)5552.6
12:00BOE MPC Vote Cut(AUG 01)0
12:00BOE MPC Vote Hike(AUG)99
12:00BOE MPC Vote Hike(AUG)0
13:30USD Trade Balance(JUN)-82.20B-85.60B
13:30USD Trade Balance(JUN)2.40%2.30%
13:30CAD Trade Balance(JUN)5.32B

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.