PM Johnson resigns.

US initial jobless claims increased to 235,000 in the latest week from 231,000 previously and slightly above consensus forecasts of 230,000 while continuing claims increased to 1.38mn from 1.32mn previously.

The Challenger jobs data recorded over 32,000 layoffs for June, an increase of 59% over the year.

The latest US employment report will be released on Friday with consensus forecasts of an increase in non-farm payrolls of around 275,000 and unemployment rate unchanged at 3.6%.

A strong release would increase speculation of a 75 basis-point Fed rate hike this month while weaker data would shift expectations towards 50 basis points.

Despite slightly weaker US jobs data, Treasuries overall lost further ground on Thursday with the 10-year yield increasing to 3.00% before settling just below this level on Friday.

Minutes from the June’s ECB policy meeting stated that a large initial rate hike would risk causing an excessive market reaction, but chief economist Lane stated that he saw no need to postpone the big rate hike until September which maintained a high degree of uncertainty.

There was further uncertainty over peripheral bond markets with the new anti-fragmentation tool potentially not ready for the July meeting.

The Euro attempted to rally at times, but there was selling interest on rallies with limited net losses despite firmer risk conditions. The Euro was weak on the crosses and EUR/USD dipped to fresh 19-year lows below 1.0150.

Bank of England external MPC member Mann stated that there were very high UK inflation expectations over a 1-year horizon and that the decision-makers panel survey recorded that pricing expectations are well above the 2% inflation target. The survey suggested that firms expected to increase prices 6.3% over the next year.

She also noted that the inflation base in broadening and that the bank needs heightened awareness of the Pound’s inflation role.

Prime Minister Johnson effectively resigned as Conservative Party leader in early Europe on Thursday with an official announcement at the New York open.  He plans to continue in a caretaker role, although there is still an important element of uncertainty whether the Party will allow this.

A framework for the leadership election is scheduled to be released on Monday.

The yen strengthened in Asia on Friday following news that former Prime Minister Abe had been shot ahead of upper-house elections this weekend. Later reports indicated that Abe was dead which maintained defensive demand for the Japanese currency.

There was a further sharp increase in European gas prices during Thursday which further sapped confidence in the Euro-Zone outlook. ECB policy uncertainty also sapped confidence for the Euro. Higher bond yields provided some support for the dollar.

EUR/USD failed to hold tentative gains and retreated to fresh 19-year lows below 1.0150.

A recovery in risk appetite limited defensive yen support. USD/JPY settled just below the 136.00 level on Thursday. USD/JPY dipped below 135.50 after the reports that former Japanese PM Abe had been assassinated.

The Swiss franc edged lower as equities posted gains, but recovered from intra-day lows amid firm underlying demand. EUR/CHF failed to hold above 0.9900 with net USD/CHF gains to near 0.9750.

Sterling secured an element of relief as Prime Minister Johnson resigned. Firmer risk conditions also helped offset an underlying lack of confidence in the economy. GBP/USD settled just above 1.2000 on Friday. GBP/EUR rallied sharply to 6-week highs near 1.1800.

Commodity currencies secured net gains as equities rallied, but failed to hold intra-day highs. AUD/USD advanced to highs above 0.6850 before fading to 0.6825. USD/CAD dipped to lows near 1.2950 before settling just below 1.3000.

Economic Calendar