Sterling posted net gains as England remained on track for a removal of coronavirus business restrictions..

Narrow ranges prevailed on Monday with US markets closed for the Independence Day holiday.  Risk appetite held steady during the day with US bond yields little changed. European equities secured limited net gains, although there were net losses in Asia. The dollar edged lower in subdued conditions on Monday and retreated further on Tuesday with a focus on reflation trades.

EUR/USD was slightly higher with a move towards 1.1900. Sterling posted net gains as England remained on track for a removal of coronavirus business restrictions. Higher oil prices and business optimism helped boost the Canadian dollar. The Australian dollar also strengthened with the Reserve Bank statement close to expectations.

The Euro-zone PMI services index was revised higher to 58.3 for the final reading from the flash reading of 58.0 with the Spanish and Italian figures both above consensus forecasts which helped underpin confidence in the Euro-zone recovery.

The Euro-zone Sentix investor confidence index strengthened to 29.8 for July from 28.1 previously, although this was marginally below consensus forecasts. The German ZEW data will monitored on Tuesday, although a limited reaction is likely. Markets will monitor any comments from ECB officials in the short term.

The Euro posted limited gains ahead of Monday’s New York open with measured net support from the data as bond yields edged higher. Overall ranges were still narrow with EUR/USD peaking around 1.1880 before stalling.

The dollar was held in very tight ranges as New York markets were closed. Commodity currencies secured tentative gains and the US currency overall was little changed with EUR/USD near 1.1870 with low trading volumes the main element.

There will be a further element of caution ahead of Wednesday’s Federal Reserve minutes and comments from central bank officials will continue to be monitored closely in the short term, especially with on-going speculation that inflation rates will increase further in the short term.

Commodity currencies posted net gains on Tuesday amid increased speculation that interest rate increases would be brought forward. The expectations of firmer global monetary policies curbed potential US currency support and the US dollar was unable to make any headway. EUR/USD moved higher to around 1.1895 even though the latest German industrial orders data was weaker than expected with a sharp 3.7% decline for May.

The dollar was held in narrow ranges ahead of Monday’s New York open with little change in US equity or bonds futures. In this environment, USD/JPY was held just below 111.00. Narrow ranges continued with Wall Street closed while the yen resisted significant selling pressure and USD/JPY consolidated just below 111.00. Markets will be watching gauges of US and global liquidity to help assess the risk of a setback in global risk conditions.

US Treasuries edged lower during Tuesday’s Asian session while confidence in the global economy remained firm. Oil prices also posted further gains during the Asian session as OPEC failed to reach agreement on raising output levels.

The dollar was unable to make headway and USD/JPY retreated to near 110.80 with EUR/JPY around 131.65.

The final UK PMI services index was revised higher to 62.4 from the flash reading of 61.7 which maintained confidence in the services outlook while the composite index was slightly above consensus forecasts at 62.2. There was a further sharp increase in new orders on the month and there were important supply-side difficulties which resulted in a sharp increase in unfilled orders. There was strong upward pressure on costs with increased at the fastest pace on record and charges also increased at the fastest pace on in the survey’s history.

The data provided an element of Sterling support and overall global risk appetite also held steady which helped underpin sentiment. GBP/USD held above 1.3800 and EUR/GBP was unable to make headway.

Prime Minister Johnson confirmed that the government is still aiming to relax all business restrictions in England on July 19th with a removal of mandatory social distancing. The move had been flagged heavily ahead of the announcement, limiting the market impact.

Sterling held a firm underlying tone, although there were reservations over high level of new infections in the country. Commodity currencies posted gains during the Asian session which helped underpin the UK currency and GBP/USD advanced to near 1.3900 while GBP/EUR retreated slightly to near 1.1685 as demand for reflation trades remained high.

Economic Calendar

07:00German Factory Orders (M/M)(MAY)1.00%1.20%
07:00RBA Assistant Gov Lowe Speaks
09:30GBP PMI Construction(MAY)64.2
10:00German ZEW Survey (Current Situation) (JUL)-9.1
10:00German ZEW Survey (Economic Sentiment)(M/M)(JUL)8679.8
10:00EUR Euro-Zone ZEW Survey (Economic Sentiment)(JUL)81.3
10:00Euro - Zone Retail Sales (M/M)(MAY)-3.10%
10:00Euro - Zone Retail Sales (Y/Y)(MAY)23.90%
14:45USD Markit PMI Composite(JUN 01)63.9
14:45USD Markit Services PMI(JUN)64.8
15:00USD ISM Non-Manufacturing PMI(JUN)6363
23:30AUD AiG Performance of Service Index(JUN)61.2

*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.