Euro slides to 19-year low.
The immediate focus remained on gas supplies on Monday and prices following an announcement from Russia that gas supplies through the Nord-Stream 1 pipeline would be suspended for three days from August 31st.
Russia also announced that supplies thereafter would be at 20% of normal levels. Following the announcement, there was a fresh surge in gas prices to a new record high.
In its latest monthly report, the Bundesbank stated that a recession is increasingly likely with a high degree of uncertainty over gas prices and sharp increases in prices likely to weigh heavily on households and companies.
The bank also stated that inflation will continue to accelerate and could peak above 10% this autumn. Overall Euro-Zone confidence continued to slide.
US inflation breakeven rates increased to a 9-week high on Monday which helped put downward pressure on Treasuries and the 10-year yield moved above 3.00% for the first time in over a month.
Overall risk appetite deteriorated further on Monday with energy fears and inflation concerns key elements in undermining confidence and the US S&P 500 index posting a decline of 2.1%.
As overall confidence in the Euro-Zone outlook continued to deteriorate, the Euro was also subjected to further selling with another dip below parity and fresh 19-year lows against the US dollar.
The US currency index surged and traded just short of the 19-year high posted in July.
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 Friday. The comments on monetary policy will be crucial for market direction.
There was no relief for the Euro-Zone economy on Monday with further fears over the implications of a surge in gas prices and expectations of supply shortages. Higher bond yields underpinned the US dollar during the day. Weaker equities also triggered defensive US demand with the dollar index close to 19-year highs. EUR/USD slumped to fresh 19-year lows just below 0.9920 on Tuesday.
The dip in risk appetite also provided an element of yen protection. USD/JPY held just below 137.50 on Tuesday from highs at 137.70.
The Swiss franc was also underpinned by weaker risk conditions. EUR/CHF lost ground to trade below 0.9600 while USD/CHF posted net gains to near 0.9650.
Sterling remained under pressure amid fears over the UK outlook. GBP/USD dipped to fresh 2-year lows below 1.1750 and failed to secure a recovery.
Weaker equities and a strong dollar hampered commodity currencies with further net selling. AUD/USD recoveries faltered quickly with a dip to 1-month lows below 0.6860 on Tuesday. USD/CAD traded to highs above 1.3050 and settled close to this level on Tuesday.
|11:00||GBP CBI Industrial Trends Orders (AUG)||3||8|
|12:00||European Central Bank Panetta Speaks|
|15:00||USD New Home Sales(JUL)||590K|
|15:00||USD New Home Sales Change(JUL)||-8.10%|