Risk appetite continued to recover on Wednesday with Delta variant concerns kept at bay during the day.

Risk appetite continued to recover on Wednesday with Delta variant concerns kept at bay during the day.

US Treasuries continued to lose ground with yields edging higher. Wall Street equities continued to regain ground during the day. Global equity markets also posted gains which curbed demand for safe assets.

The dollar retreated from 3-month highs as immediate defensive demand for the US currency faded. EUR/USD edged higher to near 1.1800 before stalling ahead of the ECB meeting. Sterling also recovered ground as risk conditions improved with GBP/USD above 1.3700. Commodity currencies recovered with a sharp rebound for the Canadian dollar.

Narrow ranges prevailed ahead of Wednesday’s New York open as markets continued to monitor risk conditions. EUR/USD found support on approach to 1.1750, but was unable to secure more than a limited recovery as gains quickly attracted selling interest.

There were no major data releases during the day which dampened activity to some extent as risk sentiment remained the dominant influence.

Risk conditions gradually strengthened during the day with a further recovery in global equity markets. In this context, there was a gradual weakening of defensive dollar support. After a fragile tone early in the session, there was a strong rebound in commodity currencies which also helped drag the US currency weaker.

In this environment, EUR/USD was able to challenge the 1.1800 level at the European close as equities strengthened.

There was little further change later in the US session with the pair consolidating just below 1.1800 after failing to break above this level.

The ECB will announce its latest policy decision on Thursday with a press conference from President Lagarde. There are no expectations of any change in interest rates. The commentary will, however, be watched very closely, especially with the central bank announcing its revised inflation target earlier this month. Market expectations are for generally dovish rhetoric with forward guidance and any announcements on the bond-buying programme important for Euro sentiment.

Tight ranges prevailed on Thursday ahead of the ECB announcement with EUR/USD just below 1.1800 as immediate defensive dollar demand remained lower.

US Treasuries continued to lose ground after Wednesday’s New York open with a further recovery in yields as the 10-year yield moved towards 1.30% which underpinned the dollar. Equities also continued to recover which curbed potential yen demand during the day. USD/JPY was able to move back above the 110.00 level and posted highs near 110.40 before fading. EUR/JPY also strengthened to the 130.0 level.

The Federal Reserve remained in a blackout period ahead of next week’s policy meeting which dampened activity to some extent.

There was a setback in the US infrastructure Bill with the Senate voting against stating a formal debate, although there were still expectations that there would be progress within the next few days. Markets also continued to debate long-term inflation trends.

Overall risk appetite held firm on Thursday with Asian equity markets making headway. In this environment, there was a decline in defensive yen demand with USD/JPY consolidating above the 110.00 level. EUR/JPY traded close to 130.00, but there was selling interest above this level.

GBP/USD found support below 1.3600 in early Europe but was unable to secure more than a very limited recovery as underlying sentiment remained notably cautious. There were further reservations surrounding the increase in Delta variant cases in the UK and the potential impact of self-isolation in curbing business activity which could undermine the wider recovery. The UK currency was initially again unable to gain more than limited support from firmer risk conditions and a further net recovery in UK equities, especially with reduced expectations of a more hawkish Bank of England policy.

There were fresh concerns surrounding UK-EU trade tensions as the UK government called for changes to be made to the Northern Ireland protocol and relax schedule customs checks on goods which are due to some into effect from September. The EU indicated that it would reject the UK proposals.

There was some relief that the UK government decided not to invoke article 16 at this stage. Risk appetite also continued to recover which helped underpin the UK currency. There was a GBP/USD recovery to near 1.3700 while GBP/EUR rallied towards 1.1620. The UK currency held steady on Thursday as risk appetite remained on a sounder footing with GBP/USD trading above 1.3700 and GBP/EUR close to 1.1620.

Economic Calendar

09:30GBP BoE Ben Broadbent Speech
11:00GBP CBI Industrial Trends Orders (JUL)181900.00%
12:45Deposit Facility Rate(JUN 01)-0.5-0.5
12:45ECB Rate Decision(JUN)
13:30USD Chicago Fed National Activity Index(JUN)0.29
13:30USD Initial Jobless Claims350K360K
13:30USD Continuing Jobless Claims3100K3241K
13:30ECB Press Conference
15:00USD Existing Home Sales(JUN)5.72M5.80M
15:00USD Existing Home Sales Change(JUN)-0.90%
15:00Euro-Zone Consumer Confidence(JUL)-3.3

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.