UK fundamentals continue to deteriorate.

US consumer confidence increased to a 4-month high of 103.2 for August from a revised 95.3 previously and above consensus forecasts of 97.9 as lower gasoline prices helped underpin sentiment.

JOLTS job openings increased to 11.24mn for July from a revised 11.04mn previously which reinforced expectations of a tight labour market.

New York Fed President Williams commented that inflation is still way too high and that the central bank needs to slow demand enough to meet supply. He noted that the base case is that interest rates need to go somewhat above 3.50% and that a restrictive policy will be needed for some time next year.

According to Atlanta head Bostic slowing inflation may give reason to slow interest rate hikes while there are risks in being too timid or too aggressive in raising rates.

ECB chief economist Lane stated that he did not rule out a mild and temporary technical recession in the Euro-Zone. He also stated that the central bank should raise rates on a step-by-step basis which dampened speculation to some extent that the central bank would raise rates by 75 basis points at the September policy meeting.

Fellow council member Knot, who usually adopts a hawkish stance, stated that he would prefer a 75 basis-point hike at this point, but added that he was open to discussion.

The latest Euro-Zone CPI inflation data is due on Wednesday.

Consensus forecasts are for an increase in the headline rate to a fresh record of 9.0% from 8.9% with the core rate edging higher to 4.1% from 4.0%.

The ADP suspended the monthly jobs report earlier in 2022, but the data is scheduled to resume on Wednesday. Given new methodology, there is the risk of an erratic release.

UK business confidence index deteriorated sharply for August according to the latest Lloyds Bank survey with the lowest reading since March 2001 while shop-price inflation accelerated to a 17-year high and overall confidence in the UK outlook weakened further.

The Euro gained further protection from hawkish ECB rhetoric and further speculation over a possible 75 basis-point rate hike in September. Lower European gas prices also provided an element of relief. There were still important reservations over the Euro-Zone outlook.

Hawkish Fed rhetoric continued to underpin the dollar. EUR/USD was resilient and settled around 1.0025 on Tuesday with a tentative net gain to 1.0035 on Wednesday. USD/JPY posted highs just above 139.0 before a limited net correction to around 138.50.

The Swiss franc lost ground on hawkish Fed and ECB rhetoric. EUR/CHF posted a strong advance to 0.9775 before fading slightly. USD/CHF recovered strongly from intra-day lows below 0.9670 to trade around 0.9730.

Sterling lost ground with weakness on fears over the domestic outlook amplified by a further decline in equities. GBP/USD posted fresh 2-year lows near 1.1620 and a recovery was held below 1.1700. GBP/EUR dipped to 7-week lows around 1.1630 and stabilised just above this level.

Commodity currencies were hurt by weaker equites and a strong dollar. AUD/USD dipped sharply to lows below 0.6850 before a recovery to 0.6890 after the Chinese data. A slide in oil prices undermined the Canadian dollar. USD/CAD strengthened to highs just above 1.3100 before a retreat to 1.3070.

Economic Calendar

13:15US ADP Non-Farm Employment Change300K128K

*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.