Risk appetite was less confident during Tuesday as markets monitored delta-variant concerns.
Risk appetite was slightly less confident during Tuesday as markets monitored delta-variant concerns. Month-end positioning also had a significant impact in choppy trading.
US bond yields were slightly higher despite weak consumer confidence data. Wall Street equities edged lower, but futures held firm on Wednesday. Asian bourses posted net gains despite fragile Chinese PMI data.
The dollar recovered from 3-week lows amid month-end position adjustment. EUR/USD dipped from 3-week high near 1.1850 to around 1.1800. Sterling recovered slightly from intra-day lows, but was unable to make net headway. Weaker than expected GDP data hampered the Canadian dollar, but commodity currencies overall held firm.
German unemployment declined 53,000 for August after a 90,000 decline the previous month and larger than consensus forecasts of a 40,000 decline while the unemployment rate edged lower to 5.5% from 5.6% as the labour-market data held firm.
The Euro-zone CPI inflation rate increased sharply to 3.0% for August from 2.2% the previous month, significantly above consensus forecasts of 2.7% and the highest rate since late 2011. The core rate increased to 1.6% from 0.7% previously and slightly above expectations of 1.5%, the strongest rate for over 8 years.
The higher than expected inflation data triggered further speculation over a more hawkish ECB policy stance. Council member Holzmann stated that the ECB needs to have inflation risks on its mind and that he would advocate for a reduction in the PEPP bond purchases for the fourth quarter of this year.
Fellow member Knot stated that practically all the incoming news had been a surprise on the upside and that the rate of bond purchases could be slowed.
The EU Commission stated that the overall target of vaccinating 70% of the EU adult population had been reached which helped underpin confidence in the near-term economic outlook amid optimism that the delta variant impact would be contained while the ECB could edge towards a tapering of bond purchases.
The Euro maintained a firm tone ahead of the New York open and EUR/USD extended the recovery to highs near 1.1850 as the dollar was unable to regain ground.
The Case Shiller house-price index increased 19.1% in the year to June from 17.1% previously, above market expectations of 18.5% and the strongest reading on record. The Chicago PMI index edged lower to 66.8 for August from 73.4 previously and slightly below consensus forecasts.
The Euro retreated after the Wall Street open with evidence of month-end position adjustment and EUR/USD dipped sharply to 1.1800 as the US currency recovered from 3-week lows. There was little net change on Wednesday with EUR/USD trading close to the 1.1800 level.
The yen lost ground against the Euro ahead of Tuesday’s New York open and the dollar was only marginally lower with USD/JPY resistance close to the 110.00 level.
Consumer confidence dipped sharply to 113.8 for August from a revised 125.1 previously and well below market expectations of 124.0. This was the lowest reading since February with a decline in the current conditions and expectations components.
Risk appetite was less confident following the US consumer confidence data with equities losing ground and the yen also gained fresh support on the crosses with month-end position adjustment in focus. USD/JPY dipped to lows around 109.60 before a sharp recovery to around 110.00 amid dollar demand into the fix.
Japan’s manufacturing PMI index edged lower to 52.7 for August from 53.0 previously, but above market expectations as supply-side issues continued.
China’s Caixin PMI manufacturing index dipped into contraction territory with a 16-month low of 49.2 from 50.3 previously and below consensus forecasts of 50.2.
Overall risk appetite held firm during the Asian session which limited potential yen demand and USD/JPY advanced to 110.25 with EUR/JPY close to 130.0.
UK mortgage approvals declined to 75,100 in July from a revised 80,300 the previous month and below market expectations of 78,500. There was a sharp reversal in mortgage lending following June’s tax-related surge with overall lending contracting by £1.4bn on the month. There was also a renewed decline in consumer credit on the month which suggested underlying caution surrounding consumer spending and reinforced doubts whether the overall UK economic recovery would be sustained.
GBPUSD was unable to hold above 1.3800 as the US currency recovered ground, but Sterling was broadly resilient despite a dip in risk appetite and GBP/EUR dipped to around 1.1650 after hitting resistance at 1.1675.
|07:00||EUR German Retail Sales (M/M)(JUL)||-0.90%||4.50%|
|07:00||EUR German Retail Sales (Y/Y)(JUL)||3.70%||6.50%|
|08:45||Markit/ADACI Mfg PMI(AUG)||60.3|
|08:50||Markit Mfg PMI(AUG)|
|08:55||EUR German Manufacturing PMI (M/M)(AUG)|
|09:00||Euro-Zone PMI Manufacturing(AUG)||62.6||62.6|
|10:00||Euro-Zone Unemployment Rate(JUL)||7.70%|
|14:30||CAD RBC Manufacturing PMI(AUG)||56.2|
|14:45||USD Manufacturing PMI(AUG)|
|15:00||USD Construction Spending (M/M)(JUL)||0.10%|
|15:00||US Manufacturing ISM(M/M)(AUG)||60.9||59.5|