UK currency was still hampered by reservations over the Delta coronavirus variant.

Markets conditions were subdued on Monday as markets digested last Friday’s US jobs report. Risk appetite was broadly steady, although with some reservations over high valuations in equities and commodities. US Bond yields recovered only slightly from intra-day lows. Wall Street stocks edged lower with caution ahead of the inflation releases.

The dollar gradually lost ground amid expectations of low yields, but pared losses on Tuesday as narrow ranges prevailed. EUR/USD edged towards 1.2200, but was unable to break this level. Sterling recovered from initial losses, but GBP/USD hit further selling close to 1.4200. Commodity currencies failed to hold gains amid concerns over higher valuations.

The Euro-zone Sentix investor confidence index strengthened to a 40-month high of 28.1 for June from 21.0 the previous month and above consensus forecasts of 26.0.  The data maintained expectations that the Euro-zone economy would continue to recover strongly over the next few months.

The dollar was unable to secure further traction ahead of the New York open with EUR/USD edging higher after finding support just below the 1.2150 level.

Overall market activity was relatively subdued as is often the case on the Monday following the monthly US jobs data.

There were underlying expectations that the Fed would maintain a very accommodative monetary policy in the short term which would also tend to undermine dollar support, especially with yield support very weak in real terms amid higher US inflation. There was, however, also an element of caution ahead of important events on Thursday with the latest US consumer prices data and ECB policy meeting. The US employment trends index strengthened to 107.4 for May from a revised 104.3.

There was some speculation that the ECB would maintain a dovish stance to help sustain very supportive financial conditions. Nevertheless, EUR/USD continued to make headway with a move to near 1.2200 just ahead of the European close. The dollar was able to secure a limited recovery on Tuesday with EUR/USD around 1.2180 as commodity currencies lost some ground. German industrial production data recorded a 1.0% decline for April compared with expectations of a small increase.

US Treasury Secretary Yellen stated that the US economy is transitioning to a pre-pandemic state. The US dollar was unable to make headway ahead of the New York open and lost further ground after the Wall Street open amid wider selling interest with USD/JPY lows around 109.20.

There were no comments on monetary policy from Federal Reserve speakers with the blackout period in operation ahead of next week’s policy meeting and overall market ranges were lower. There was no significant impact at this stage from further debate surrounding the US infrastructure debate.

There was an element of caution ahead of the next round of inflation data releases with the Chinese data due on Wednesday. Japanese wages data was stronger than expected and there was a slight upward revision to first-quarter GDP data, but overall yen sentiment remained weak, especially with coronavirus concerns.

USD/JPY secured a slight recovery to 109.45 in Asia as the US currency secured a limited correction with EUR/JPY around 133.30.

Halifax reported that house prices increased 1.3% for May after a revised 1.5% gain the previous month with the year-on-year rate at 9.5% from 8.2%. Prices reached a fresh record high with the annual increase the strongest for just over five years.

The on-going strength of housing data maintained speculation that the Bank of England would have to shift to a less accommodative policy within the next few months which helped underpin Sterling, especially with expectations that the Federal Reserve and ECB would maintain very loose policies.

The UK currency was still hampered by reservations over the Delta coronavirus variant, although the impact was lessened by the on-going vaccination programme which should lessen the risk of serious illness, especially with new cases tending to be concentrated in young people.

Media reports indicated that the planned June 21st lifting of coronavirus restrictions would be delayed for 2 weeks. BRC data reported an 18.5% increase in like for like retail sales in the year to May with a 10.0% increase from 2019 while Barclaycard reported a 7.6% increase in spending compared with 2019. Sterling edged lower in early Europe as caution prevailed, although overall ranges were narrow ahead of key events with GBP/USD around 1.4160.

Economic Calendar

Expected Previous
07:00 German Industrial Production (M/M)(APR) 0.50% 2.20%
10:00 German ZEW Survey (Current Situation) (JUN) -41.3 -40.1
10:00 German ZEW Survey (Economic Sentiment)(M/M)(JUN) 84.4
10:00 EUR Euro-Zone ZEW Survey (Economic Sentiment)(JUN) 84
10:00 Euro-Zone GDP (Q/Q) -0.60% -0.60%
10:00 Euro-Zone GDP (Y/Y) -5.00% -1.80%
13:30 USD Trade Balance(APR) -74.50B -74.40B
13:30 CAD Trade Balance(APR) 0.70B -1.14B
15:00 USD JOLTs Job Openings(APR) 8.123M

*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.