Narrow ranges prevailed on Tuesday with caution ahead of Wednesday’s Fed decision.
Narrow ranges prevailed on Tuesday with caution ahead of Wednesday’s Fed decision. The dollar regained some ground later in the session amid position adjustment and an element of short covering.
Overall risk appetite held firm, although with reservations over coronavirus developments and Chinese bourses declined.
EUR/USD drifted to the 1.1850 area with Brexit developments also in focus. Sterling regained some ground amid reports that the UK would gain access to EU clearing for 18 months and possible compromise on fishing. Commodity currencies faded from their best levels, but selling was limited.
The German ZEW economic sentiment index strengthened to 77.4 for September from 71.5 previously and above consensus forecasts of 70.0. There was also an improvement in the current conditions index to -66.2 from -81.3 while the Euro-zone index improved to 73.9 from 64.0 previously.
EUR/USD tested the 1.1900 area, but was unable to break above this level and drifted slightly lower into the US open.
The New York Empire manufacturing index strengthened to 17.0 from 3.3 previously and above consensus forecasts of 6.6. New orders moved back into expansion territory and shipments increased, although unfilled orders continued to decline. Prices increased at a stronger pace for the month while there was a further small increase in employment. Companies were more optimistic over the outlook with employment projected to increase.
Industrial production increased 0.4% for August compared with expectations of a 1.0% gain, although July data was revised higher.
There was a significant element of position adjustment ahead of Wednesday’s Federal Reserve policy decision and EUR/USD retreated to the 1.1850 area at the European close as the US dollar gained slight support amid a paring of short positions.
The Federal Reserve rhetoric will be monitored closely on Wednesday with forward guidance an extremely important element. The latest individual rate forecasts from individual committee members will also have an impact with projections out to 2023. EUR/USD settled just below the 1.1850 level in early Europe on Wednesday.
The dollar continued to lose traction ahead of the Wall Street open with 2-week lows near 105.30 against the Japanese yen. The dollar was able to secure a firmer tone into the European close, but the yen maintained a firm tone with net gains on the crosses and USD/JPY was held near 105.50.
The World Trade Organisation (WTO) ruled that US tariffs on China were against its trade rules, although the implications are likely to be limited at this stage.
The dollar was unable to regain ground later in the US session and there was no evidence of any progress in securing a further fiscal stimulus.
The Chinese yuan maintained a firm tone on Wednesday which limited wider US currency support.
Japanese trade data was weaker than expected with a 20.8% decline in exports in the year to August. There were no expectations of significant policy moved by the Bank of Japan at Thursday’s policy meeting. The dollar remained on the defensive during the Asian session although narrow ranges prevailed with USD/JPY around 105.25 as the yen continued to resist selling pressure on the crosses.
Sterling drew an element of support from the UK labour-market data with a smaller than expected decline in employment, although there was still a high degree of concern over the outlook. Overall global risk appetite also held firm during the day which underpinned the UK currency.
Political developments continued to dominate during the day with further concerns over trade tensions. There were reports that the EU had offered the City of London an 18-month extension for EU banks being able to clear Euro derivatives in London which provided an element of relief and suggested there could be scope for wider compromise.
GBP/USD was again unable to hold above the 1.2900, although there was support on dips towards the 1.2850 area and GBP/EUR rallied to near 1.0880. After the European close there were also reports that the UK had explored potential alternative proposals for fisheries which helped support confidence. There was, however, also a warning from four US congressmen that there would be no UK-US trade deal if the EU Withdrawal Agreement was broken.
The headline UK CPI inflation rate declined to 0.2% for August from 1.0% previously and fractionally above consensus forecasts. The core rate declined sharply to 0.9% from 1.8%, although above expectations of 0.9%.
|07:00||GBP Core CPI (Y/Y)(AUG)||0.60%||1.80%|
|07:00||GBP CPI (Y/Y)(AUG)||0.10%||1.00%|
|07:00||GBP CPI (M/M)(AUG)||-0.60%||0.40%|
|07:00||GBP PPI Core Output (Y/Y)(AUG)||0.3||0.1|
|07:00||GBP PPI Output (Y/Y)(AUG)||-0.70%||-0.90%|
|07:00||GBP PPI Input (M/M)(AUG)||0.30%||1.80%|
|07:00||GBP PPI Input (Y/Y)(AUG)||-4.90%||-5.70%|
|10:00||Euro-Zone Trade Balance(JUL)||12.6B||21.2B|
|13:30||USD Core Retail Sales (M/M)(AUG)||1.10%||1.90%|
|13:30||USD Advance Retail Sales (M/M)(AUG)||1.10%||1.20%|
|13:30||Bank of Canada Core CPI (M/M)(AUG)||-||-0.10%|
|13:30||Bank of Canada Core CPI (Y/Y)(AUG)||-||0.70%|
|13:30||CAD CPI (M/M)(AUG)||0.50%||0.10%|
|13:30||CAD CPI (Y/Y)(AUG)||0.50%||0.10%|
|13:30||CAD Foreign Securities Purchase(JUL)||-||-13.52B|
|13:30||NAHB Housing Market Index(SEP)||78||78|
|15:00||USD Business Inventories(JUL)||0.20%||-1.10%|
|19:00||USD FOMC Projections of Economy||-||-|
|19:00||FOMC Interest Rate Decision||-||0.25%|
|19:30||FOMC Press Conference||-||-|
|21:00||USD TIC Net Long-Term(JUL)||-||113B|
|23:45||NZD GDP (Y/Y)||0.30%||-0.20%|
|23:45||NZD GDP (Q/Q)||-1.00%||-1.60%|