The dollar strengthened into Monday’s New York open, but failed to hold its best levels as underlying US sentiment remained negative.

The dollar strengthened into Monday’s New York open, but failed to hold its best levels as underlying US sentiment remained negative. EUR/USD found support at 1.1700 to trade with only marginal losses around 1.1770.

US equities posted gains with the Nasdaq index hitting a record high with European and Asian bourses also making net gains. Risk appetite was still brittle amid reservations over global demand conditions.

Sterling held steady against the Euro with gains in international equities providing some support. Commodity currencies retreated initially before regaining ground as the US dollar slipped. The Reserve Bank of Australia held policy steady with AUD/USD hampered by domestic coronavirus concerns.

The final Euro-zone final PMI manufacturing index for July was revised higher to 51.8 from the flash reading of 51.1 with indices for all major countries in expansion territory and beating consensus forecasts on the month. The Euro briefly strengthened ahead of the US open before losing ground amid an on-going correction with the single currency still seen as over-bought. The US currency also secured a tentative recovery with EUR/USD retreating to just below 1.1700.

The final US PMI manufacturing reading was revised down slightly to 50.9 from the flash reading of 51.3 with little impact.

The ISM manufacturing index strengthened to 54.2 for July from 52.6 the previous month which was above market expectations and the strongest reading since March 2019. There was a stronger rebound in new orders and a small increase in order backlogs, although there was still only a marginal increase in export orders. Employment continued to decline at a significant pace during the month which will maintain unease over labour-market trends. There was also still an important element of fragility within the manufacturing sector and markets were also waiting for the key jobs data later this week.

Richmond Fed President Barkin stated that the virus resurgence is dampening the pace of US economic momentum and the next 2-3 weeks will be important in providing further information. Chicago Fed President Evans was forceful in his call for further fiscal support, especially as there was little more that monetary policy can do in the short term. The dollar was unable to sustain the gains with EUR/USD around 1.1750 at the European close.

The US currency edged lower on Tuesday as underlying US confidence remained weak with EUR/USD around 1.1765 as commodity currencies were also able to stabilise amid gains in equities.

The dollar held firm ahead of the New York open with gradual gains and a USD/JPY peak just below 106.50 on wider gains. Equity markets made firm progress during the day which limited the potential for defensive Japanese currency demand. The US dollar, however, was unable to hold its best levels amid an underlying lack of confidence.

There was no breakthrough in talks on the stimulus package on Monday. Although House speaker Pelosi stated that meetings had been constructive, she did not expect an agreement would be reached this week which maintained underlying market unease, especially with concerns that the economy was already losing momentum. There was a slowdown in the number of new daily coronavirus infections which provided an element of relief over underlying trends.

The Nasdaq index posted a fresh record closing high and USD/JPY consolidated just below 106.00 at the new York close.

The WHO warned that there may never be a silver bullet for coronavirus with concerns that any vaccine could only provide protection for a few months. The yen was unable to secure sustained support and USD/JPY traded just above 106.00 against the Japanese currency in early Europe on Tuesday.

The final UK PMI manufacturing reading was revised down slightly to 53.3 from 53.6 in the flash reading. Although the data still indicates expansion, there will be some concerns that the UK recovery is losing momentum relative to the Euro-zone, especially as Euro-zone data was revised higher.

GBP/USD dipped to lows just above 1.3000 before regaining some ground to trade around 1.3070 as the US currency failed to hold its best levels.

Early in US trading there were reports that the EU was prepared to offer concessions on the level-playing-field demands which are a key element in the UK/EU trade talks. The comments indicated the potential for independent dispute-settling mechanisms. Markets will await the UK response and any positive signals would underpin Sterling sentiment. The Euro dipped to near 0.8980 before edging back to the 0.9000 level with further caution ahead of Thursday’s Bank of England policy statement.

Economic Calendar

Expected Previous
10:00 Euro-Zone PPI (Y/Y)(JUN) -4.80% -5.00%
10:00 Euro-Zone PPI (M/M)(JUN) -0.50% -0.60%
14:30 CAD RBC Manufacturing PMI(JUL) - 47.8
15:00 USD Factory Orders(JUN) 5.00% 8.00%
23:30 AiG Construction Index(JUL) - 35.5
23:45 NZD Employment Change (Q/Q) -0.30% 0.70%
23:45 NZD Unemployment Rate 4.30% 4.20%

*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.