Rhetoric from Fed Chair Powell was relatively dovish which helped underpin risk appetite.

Rhetoric from Fed Chair Powell was relatively dovish which helped underpin risk appetite. US bond yields edged lower in New York which underpinned equities. Wall Street equities made headway on hopes for sustained monetary support.

The dollar gradually lost ground amid Powell’s broadly dovish commentary and recovered only slightly from lows. EUR/USD posted highs near 1.1950 before correcting lower. Sterling secured net gains with further speculation over a more hawkish Bank of England stance as GBP/USD traded near 1.3950. Commodity currencies advanced as the US dollar lost ground, although tentative conditions continued.

EUR/USD continued to fluctuate around the 1.1900 level against the dollar ahead of Tuesday’s New York open with relatively tight ranges. Given that the latest CFTC data recorded a net increase in short dollar positions, there was increased potential for a covering of short positions which maintained a nervous tone in markets.

US existing home sales were little changed at an annual rate of 5.80mn for May from 5.85mn previously with supply issues having an impact.

The Richmond Fed manufacturing index strengthened to 22 for June from 18 previously with a strong increase in new orders. Employment increased at a solid pace for the month while there upward pressure on costs and prices eased only slightly on the month.

Euro-zone consumer confidence improved to -3.3 for June from -5.1 previously, although markets had been expecting a slightly faster rate of improvement.

Overall, the dollar continued to edge lower late in the European session with EUR/USD strengthening to near 1.1930.

Fed Chair Powell stated that a lot of patience may be required to understand what is really happening on inflation and employment. He added that he sees factors affecting inflation fading over time and added that he had a high degree of confidence in forecasting transitory inflation.

Powell also stated that there was still a long way to go on the employment front while there would be a lot more job creation in autumn. Overall, he noted that the Fed won’t raise rates on fears of inflation alone. The rhetoric overall was relatively dovish and failed to support the dollar with EUR/USD posting net gains to 1.1950 as risk appetite held firm and commodity currencies posted gains. The dollar did recover some ground on Wednesday, although EUR/USD held comfortably above the 1.1900 level.

US Treasuries briefly strengthened ahead of Tuesday’s New York open with US yields moving lower, but there was a reversal with the 10-year yield edging back towards 1.50% and the dollar was able to post net gains as the yen remained firmly on the defensive.

Risk appetite held firm following Powell’s comments with equities posting net gains and USD/JPY posted highs around 110.80 before settling around 110.60.

San Francisco Fed President Daly stated that the central bank is not even talking about raising interest rates as dovish rhetoric continued.

Japan’s PMI manufacturing index declined to 51.5 for June from 53.0 previously with activity constrained by severe supply-chain pressures. The services index remained in contraction at 47.2 from 46.5 previously, maintaining a lack of confidence in the overall outlook. Markets remained wary over geo-political tensions between US and China, although equity futures did post gains in Asia. Overall, USD/JPY edged higher to the 110.80 area as EUR/JPY settled above the 132.0 level.

There was little reaction to the UK government borrowing data with an underlying net improvement amid economic recovery, but important underlying vulnerability. Sterling drifted lower in early Europe before regaining some ground as risk appetite held firm.

The CBI June industrial orders index strengthened to 19 from 17 previously and slightly above consensus forecasts. This was the strongest reading since 1988 and output in the latest three months increased at the fastest pace since 1975. There were further notable supply shortages with strong upward pressure on costs and prices.

Underlying Sterling sentiment held firm during the day with a solid tone surrounding risk appetite helping to provide net support. There was also speculation that the Bank of England would adopt a more hawkish stance at this week’s policy meeting which was significant in curbing any potential selling pressure.

Later in the day, there were also some reports that there had been progress in EU-UK talks over the Northern Ireland protocol.

Overall, GBP/USD strengthened to highs above 1.3950 against the weaker dollar while GBP/EUR settled close to 1.1680 after finding support just below 1.1660. Sterling failed to make further headway on Wednesday, but GBP/USD held above 1.3900 ahead of the latest UK business confidence data.

Economic Calendar

08:15Markit Mfg PMI(JUN)58.559.4
08:15Markit Serv PMI(JUN)56.6
08:30EUR German PMI Composite(JUN)57.156.2
08:30EUR German PMI Services(JUN)52.8
08:30EUR German Manufacturing PMI (M/M)(JUN)65.964.4
09:00Euro-Zone PMI Composite(JUN)57.1
09:00Euro-Zone PMI Services(JUN)55.2
09:00Euro-Zone PMI Manufacturing(JUN)63.1
13:30USD Current Account Balance-189.9B-188.5B
13:30CAD Retail Sales (M/M)(MAY)2.30%3.60%
13:30CAD Retail Sales Ex Autos (M/M)(MAY)4.30%
14:45USD Manufacturing PMI(JUN)60.262.1
14:45USD Markit PMI Composite(JUN 01)68.7
14:45USD Markit Services PMI(JUN)64.570.4
15:00USD New Home Sales(MAY)863B
15:00USD New Home Sales Change(MAY)-5.90%

*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.