The Bank of England made no changes to policy at the latest policy meeting with a unanimous vote with base rate at 0.1%.

US data releases were mixed with some reservations over labour-market trends. The dollar remained firmly on the defensive and tested 26-month lows before a slight recovery.

EUR/USD hit selling interest just above 1.1900, but registered significant net gains. Expectations of high liquidity underpinned equity markets with net US gains, although Asian markets edged lower. Risk appetite held steady during Wednesday, although there were concerns over a lack of US fiscal agreement.

Sterling was dominated by global moves on Wednesday and advanced after the Bank of England statement with GBP/USD above 1.3150. Commodity currencies made strong gains, but failed to hold their best levels amid reservations over global demand.

The final Euro-zone PMI reading for July was revised down to 54.7 from the flash reading of 55.1, although still well above the June reading of 48.3. The Italian figure was slightly above market expectations, but there were downward revision for the German and French indices. The overall composite index was still the strongest reading since June 2018. There was an increase in new business, although unfilled orders and employment declined further on the month. The Euro edged lower following the data, although the US currency was unable to take more than brief advantage and the single currency moved higher into the New York open.

US ADP data recorded an increase in private-sector payrolls of 167,000 for July and well below consensus forecasts of 1.5mn on the month. There was, however, a sharp upward revision for June to 4.31mn from the original estimate of 2.37mn. The data created fresh reservations over Friday’s employment report, although there was still an important element of uncertainty given that correlations between the ADP and non-farm payrolls data have been very mixed over the past few months.

The PMI services-sector index was revised higher to 50.0 from the flash reading of 49.6. The ISM non-manufacturing index strengthened to 58.1 for July from 57.1 the previous month and above consensus forecasts of 55.0. There was a stronger increase in new orders and order backlogs increased. There was, however, a faster pace of employment reduction which maintained concerns over the jobs market. The dollar overall lost ground after the data as underlying US confidence remained negative.

Commodity currencies secured a fresh advance late in the European session with EUR/USD pushing sharply higher to a peak above 1.1900 before a correction to near 1.1850. Dollar sentiment remained notably fragile with EUR/USD trading around 1.1900 in early Europe on Thursday as German industrial orders jumped 27.9%.

Gains in global equity markets had some impact in curbing defensive demand for the yen during the day with EUR/JPY trading above 125.0. The dollar overall remained on the defensive with a USD/JPY retreat to lows near 105.30 before a tentative recovery.  Fed vice-chair Clarida stated that there had been evidence of a slowdown in July, but still expected the economy to be back at pre-virus levels by the end of 2021, especially with a new fiscal stimulus package coming. Dallas Fed President Kaplan stated that the virus resurgence had muted the economic recovery and it was important to extend jobless benefits.

Negotiations on the fiscal stimulus package made little headway with the Democrats continuing to hold out for a larger fiscal package and holding out for further concessions from the Republicans. Senate leader McConnell stated that both sides wanted a deal, but the two sides were still far apart.

The CDC reported an increase in new coronavirus cases of close to 50,000 and slightly higher from the previous day, although well below July peaks. The dollar was held in narrow ranges and USD/JPY traded just below 105.50 in early Europe as Asian equity markets edged lower.

The UK PMI services-sector index edged lower to 56.5 according to the final July reading from the flash reading of 56.6 and well above 47.1 for June. Order backlogs declined at a slower rate while employment continued to decline on the month. Yields at the 10-year UK auction declined to 0.14% from 0.20% previously, reinforcing the lack of yield support for the UK currency. There was an important element of caution ahead of the Bank of England policy announcement. The dollar was unable to make any headway and GBP/USD strengthened to highs just above 1.3150 before fading.

The Bank of England made no changes to policy at the latest policy meeting with a unanimous vote with base rate at 0.1%. The bank noted a high degree of uncertainty over the outlook, but estimated that consumer spending in July was 10% below the end-2019 level. The housing market has returned to near normal, but investment remains weak and overall downside risks remain. There were also reservations over the labour-market trends. There will be no policy tightening until spare capacity has been removed with GDP projected to decline 9.5% for 2020 from 14.0% previously.

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