Sterling lost traction during the day with fragile global risk conditions sapping support.

US retail sales data was stronger than consensus forecasts which underpinned confidence in the US outlook. Risk appetite was, however, more fragile amid reservations surrounding coronavirus developments.

US bond yields drifted lower despite the firm US data. Wall Street equities posted net losses during the day. Global bourses also lost ground amid vulnerable risk conditions with sharp selling in Hong Kong.

The dollar secured tentative net gains and edged towards 3-month highs. EUR/USD was held close to 1.1800 while USD/JPY traded below 110.00 as the yen held firm. Sterling lost traction during the day with fragile global risk conditions sapping support.

The Euro-zone CPI inflation rate was confirmed at 1.9% with the core rate also unchanged from the flash reading at 0.9%. The Euro was unable to make any headway ahead of Friday’s New York open and EUR/USD continued to test the 1.1800 support area against the dollar amid expectations of a dovish ECB policy stance.

US retail sales increased 0.6% for June and stronger than consensus forecasts of a 0.4% decline, although the May data was revised down to a decline of 1.7%. Underlying sales increased 1.3% for the month after a 0.9% decline the previous month while the control group posted a 1.1% increase on the month. There was a strong monthly increase in department store sales while auto sales declined on the month with furniture sales also declined sharply on the month.

There was subdued initial reaction to the data with the dollar holding a firm underlying tone and the US currency gained further net support later in the session.

CFTC data recorded a decline in long Euro positions to just below 60,000 in the latest week from 77,000 previously and the lowest reading since March 2020, lessening the potential for further Euro selling.

There will be further uncertainty ahead of Thursday’s ECB policy meeting and forward guidance from the bank. EUR/USD held fractionally above 1.1800 in early Europe on Monday but was unable to make any headway as US dollar sentiment held firm.

There was a muted response in US Treasuries from the US retail sales data with the 10-year yield held around 1.32% while equity futures edged higher. USD/JPY was able to post net gains to 110.25 after the Wall Street open as the yen lost wider support. The yen gained renewed support late in US trading as equities moved lower and USD/JPY dipped to near 110.00 at the US close.

There should be no comments on monetary policy from Federal Reserve officials during the week with the blackout period coming into effect at the weekend ahead of the policy statement next week. This may dampen market volatility, although with the further risk of choppy trading amid lower than normal trading volumes.

CFTC data recorded a decline in short yen positions, but there is still scope for further position adjustment which could generate further yen gains. The Japanese currency maintained a firm tone on Monday, especially with risk appetite still fragile.

US equity futures lost ground on Monday and regional equity markets lost ground amid the more fragile risk conditions, although Chinese bourses were resilient.

In this environment, the yen maintained a firm tone and USD/JPY traded just below 110.00 with EUR/JPY around 129.75.

Sterling attempted to move higher after the European open on Friday, although it again failed to hold the gains with GBP/USD advance held around 1.3860. GBP/EUR was also resilient around the 1.1660 area as the UK failed to secure wider support.

There were no further comments on inflation and interest rates during the day from Bank of England officials. The UK currency continued to lose ground later in the day with a weaker tone in global equities contributing to the soft underlying tone and there was a GBP/USD dip below the 1.3800 level.

Comments from MPC member Haskel will be watched closely on Monday given the focus on Bank of England policy and hawkish comments from two members last week.

CFTC data recorded a sharp decline in long Sterling positions to 8,000 in the latest week from near 22,000 previously and the lowest level January this year.

Markets were uneasy over the continuing surge in new infections and potential negative impact on the economy from workers forced to self-isolate.

The housing sector data remained firm with Rightmove recording an increase in house prices of 0.7% for July with an annual increase of 5.7% from 7.5% previously.

Sterling was unable to make headway on Monday with fragile global risk conditions and delta variant concerns continuing to sap underlying support n domestic and global grounds. GBP/USD weakened to 1.3750 with GBP/EUR weakening to just below 1.1660.

Economic Calendar

11:00Bank of England (BoE) Monetary Policy Committee (MPC) Member Jonathan Haskel Speaks
11:00German Buba Monthly Report
15:00NAHB Housing Market Index(JUN)8381

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