UK consumer confidence at record lows.

The Philadelphia Fed manufacturing index strengthened to 6.2 for August from -12.3 the previous month and significantly above consensus forecasts of -5.0. The new and existing orders components remained in contraction territory, but there was a net improvement for the month while shipments maintained strong growth.

There was an easing of cost pressures with a slower rate of increase in prices paid to the lowest level since December 2020. The prices received index also dipped to the lowest reading since February 2021. Companies were less optimistic over the outlook with a negative reading for the third successive month while cost pressures are expected to ease slightly.

San Francisco Fed President Daly stated that a rate hike of 50 or 75 basis points would be acceptable at the September meeting. 

She added that she wants a raise and hold strategy which suggests a lower peak, especially as she also warned that she didn’t want to tighten more than necessary.

St Louis Fed President Bullard stated that he preferred a 75 basis-point rate hike at the September meeting.

Kansas City Head George stated that financial conditions have eased due to expectations that the Fed will slow down, but this does not represent hoe the Fed is thinking.

The dollar has posted strong gains over the past 24 hours with the dollar index at a 1-month high.

Hawkish Fed rhetoric contributed to gains while underlying Euro weakness and further losses for the Chinese yuan were key elements in boosting the US currency with the yuan at the lowest level for close to 2 years. 

At the latest policy meeting, the Norges Bank increased interest rates by 50 basis points to 1.75% which was in consensus forecasts, although a significant minority expected 25 basis points.

The bank expects a further rate hike at the September meeting. 

The UK GfK consumer confidence index retreated to a fresh record low for August. 

The latest retail sales data, however, was slightly stronger than expected with a 0.3% increase in sales volumes for July. 

ECB council member Schnabel stated that the inflation outlook had not improved which suggested that she would back a large rate hike at the September policy meeting. The Euro failed to sustain any gains amid underlying fears over the outlook. There were further fears over the impact of higher gas prices. EUR/USD gradually retreated towards 1.0100 with a dip below helping to trigger 1-month lows around 1.0070.

The yen gained some respite on the crosses against major currencies. USD/JPY still posted gains to near 136.40 before consolidating. The Swiss franc resisted further overall losses, but USD/CHF posted strong gains to near 0.9600.

Sterling remained under pressure amid fears over the UK outlook. Stronger than retail sales data failed to provide relief. After an initial rebound, GBP/USD dipped decisively below 1.2000 with 4-week lows at 1.1900.

Commodity currencies faded after the New York open and pressure gradually increased. AUD/USD dipped to below 0.6900 before stabilising. USD/CAD failed to hold below 1.2900 and advanced to 1.2960.

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