Reduced expectations of aggressive Fed easing continued to support the US currency.

Reduced expectations of aggressive Fed easing continued to support the US currency during Monday, although ranges were narrow.

Equity markets lost ground as expectations of aggressive Fed rate cuts declined further.

Demand for the yen and Swiss franc weakened slightly as US bond yields edged higher with the Euro also unable to make headway.

Gold prices also declined as bond yields increased and the dollar maintained a firm tone. Oil prices gained some support from Iran tensions, but failed to hold gains.

Commodity currencies were unable to make headway amid a solid US currency tone with Sterling also losing ground. Bitcoin pushed above $12,000 which helped trigger further buying.

Sterling edged higher in early Europe on Monday, although GBP/USD gains were capped below 1.2550. Wider US gains subsequently triggered a fresh test of support just below 1.2500, but GBP/EUR drifted to near 1.1135 in narrow ranges.

Political uncertainty continued to unsettle Sterling with markets still fretting over the risks of a ‘no-deal’ Brexit. Reported comments from EU Commission President nominee Von der Layen that a further extension was possible allayed fears to some extent. House of Commons members were still looking at ways to block any ‘no-deal’ outcome.

CFTC data recorded a further increase in short, speculative positions to the highest level since September 2018, increasing the risk of short covering if there is any shift in sentiment towards the UK outlook.

BRC retail sales data recorded a 1.6% decline for like-for-like sales in the year to June, however, reinforcing concerns over the short-term growth outlook. Political developments will continue to be watched closely with the opposition Labour Party due to debate its Brexit stance. Sterling was unable to make any headway on Tuesday and GBP/USD again tested the 1.2500 support level.

Economic Calendar