UK confidence continues to deteriorate.

The Euro-Zone current account returned to a EUR4.2bn surplus for June after a deficit of EUR6.9bn for May and compared with expectations of a further deficit.

The 12-month surplus still narrowed to EUR12bn and 0.9% of GDP from EUR361bn and 3.1% of GDP the previous year and illustrated the sharp underlying deterioration in the current account situation.

There were further major concerns over the impact of extremely high UK energy prices, especially with the countdown to the October spike in prices continuing.

Industrial action in pursuit of higher wages also reinforced a lack of confidence, especially with long-term fears over the UK competitive outlook with the Sterling index at 6-week lows.

The dollar has posted 5-week highs with a key lack of confidence in the Euro-Zone and UK currencies helping to provide net US support.

CFTC data recorded a net increase in short Euro positions to near 43,000 contracts and the largest short position since March 2020 while the overall long dollar position increased slightly to $13.4bn for the latest week.

The Chinese central bank sanctioned another cut in interest rates with the 1-year LPR rate cut to 3.65% from 3.70%.

Markets had been expecting a steeper cut, although the yuan still posted fresh 23-month lows which helped underpin the dollar.

The economic calendar is sparse on Monday, but the latest PMI data will be monitored closely on Tuesday. Consensus forecasts are for a further net deterioration in conditions in the Euro-Zone and UK with a recovery in the US services index from contraction territory seen last month.

Fed Chair Powell will make a speech at the Jackson Hole symposium this Thursday. The comments on monetary policy will be crucial for market direction.

Confidence in the Euro-Zone outlook has continued to deteriorate, especially with a further increase in gas prices on Friday. There were no major US developments during the day. The US currency did gain defensive support as equities declined. EUR/USD continued to slide with fresh 1-month lows just below 1.0025 before a marginal recovery.

Higher US yields boosted the dollar and undermined the yen. USD/JPY peaked near 137.45 before a very limited correction.

The Swiss franc overall was little changed, but held firm as global developments dominated. EUR/CHF edged lower with USD/CHF strengthening to near 0.9600.

Sterling remained under pressure during Friday with a notable lack of confidence in the outlook, especially with energy fears and strikes. GBP/USD dipped sharply to 1-month lows just below 1.1800 before stabilising.

Commodity currencies came under heavy selling amid dollar gains and a slide in equities. USD/CAD peaked just above 1.3000 and traded just below this level on Monday. AUD/USD slumped to lows near 0.6850 before a recovery to 0.6900 after the Chinese rate cut.

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