Relatively narrow ranges prevailed on Monday with caution ahead of Wednesday’s Fed statement a significant element.

Relatively narrow ranges prevailed on Monday with caution ahead of Wednesday’s Fed statement a significant element.

Risk appetite was slightly more brittle amid global delta variant reservations. Wall Street stocks still posted gains with a record high for the S&P 500 index. There were further losses for Chinese and Hong Kong stocks.

The dollar overall lost some ground, although with a recovery from daily lows. EUR/USD pushed above the 1.1800 level and held near this level on Tuesday. Sterling secured net gains as a further decline in UK coronavirus cases helped underpin sentiment. Commodity currencies secured limited gains, but retreated significantly from intra-day highs with fragile Australian dollar sentiment. Scandinavian currencies posted a significant net recovery.

The German IFO business confidence index declined to 100.8 for July from a revised 101.7 previously and below consensus forecasts of 102.1. The current conditions component edged higher to 100.4 from 99.7, but there was a decline in the expectations index to 101.2 from 103.7 with both elements below market expectations.

The IFO stated that supply problems were weighing on both the industrial and retail sectors. These difficulties are expected to remain in the short term which will tend to maintain upward pressure on costs and prices. Pricing trends are likely to maintain unease within the Bundesbank. The institute also noted that there were concerns over the coronavirus impact on the tourism and consumer sectors with a mixed underlying outlook.

There was only a marginal impact on the Euro as the single currency tended to edge higher during the European session.

The dollar continued to lose ground early in New York with EUR/USD edging above the 1.1800 level as the low level of real interest rates undermined the US currency.

US new home sales declined sharply to an annual rate of 0.68mn for June from 0.77mn the previous month. The figure was well below consensus forecasts of 0.79mn and the lowest reading since May 2020. The Dallas Fed manufacturing index retreated to 27.3 from 31.1 previously.

The dollar pared losses later in New York trading, but EUR/USD held just above 1.1800 as narrow ranges prevailed.

There was further caution ahead of Wednesday’s Federal Reserve policy decision and also reservations over month-end position adjustment. Tight ranges continued to prevail on Tuesday with markets also monitoring US and global coronavirus developments closely as EUR/USD traded fractionally below 1.1800.

After losses during the Asian session, US equity futures edge higher ahead of the New York open while there was a small increase in bond yields. The dollar was unable to gain any traction and USD/JPY drifted to just below 110.30 as underlying yen selling remained limited.

Narrow ranges prevailed in New York with marginal US dollar gains with US yields edging above intra-day lows.

There were further reservations over the Chinese economic outlook with which had some impact in stifling risk appetite. There was a slowdown in industrial profits growth for the fourth successive month with strength in raw material prices undermining margins.

Asian equities overall secured limited net gains, although there were further losses in China and a sharp retreat in Hong Kong which hampered risk conditions. US Treasuries were little changed with USD/JPY edging lower to near 110.20 while EUR/JPY held close to the 130.00 level at the European open.

Bank of England MPC member Vlieghe stated that he thought the correct policy would be to maintain the existing monetary stimulus for at least a few quarters and reiterated that he expects the increase in inflation to be short lived. He also expected any increase in interest rates would be limited given a decline in the neutral rate.

Sterling briefly dipped lower following the comments with Vlieghe unlikely to back any near-term hawkish shift by the central bank at the August policy meeting. Selling pressure was limited with a recovery into the New York open, especially with Vlieghe leaving the central bank in September.

After edging below 1.3750, GBP/USD pushed above 1.3800 as the US dollar lost ground in global markets.

A further decline in new UK coronavirus cases also helped underpin confidence, especially with reservations over delta variant developments in Europe while global risk conditions held relatively steady which limited the potential for UK currency selling.

GBP/USD advanced to highs to around 1.3835 before correcting slightly while GBP/EUR rallied to just above 1.1700. The UK currency held steady on Tuesday as GBP/USD traded above 1.3800 with markets monitoring potential month-end position adjustment.

Economic Calendar

08:30BoJ Governor Kuroda Speaks
11:00CBI Distributive Trades Survey(JUL)1425
13:30USD Durable Goods Orders Ex Transportation(JUN)0.80%0.30%
13:30USD Durable Goods Orders (M/M)(JUN)2.30%
14:00US House Price Index (M/M)(MAY)1.80%
15:00USD CB Consumer Confidence(JUL)127.3

*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.