Relatively narrow ranges prevailed on Monday with an element of caution ahead of the Fed meeting.

Relatively narrow ranges prevailed on Monday with an element caution ahead of the Fed meeting. Risk appetite held firm with expectations of a recovery in global demand.

The dollar was little changed overall with a recovery from intra-day lows and EUR/USD settling just below 1.1300. Sterling was resilient and GBP/USD traded around 1.2700 as hopes for a global recovery underpinned UK sentiment despite domestic reservations.

The Euro-zone Sentix investor recovered to -24.8 for June from -41.8 the previous month. Although this was slightly below consensus forecasts, the index is now above the troughs recorded in 2009 and 2012, maintaining expectations of economic recovery.

According to sources, the German government will meet on Friday to discuss implementation of the EUR130bn stimulus package including a temporary cut in VAT and incentives for retail spending.

Markets will also monitor political rhetoric ahead of Thursday’s important Eurogroup meeting

The Euro edged lower during the European session with EUR/USD retreating to the 1.1270 area as the US dollar also attempted to extend the correction seen after Friday’s employment data. Overall trading was subdued with a lack of fresh market incentives.

In testimony to the European Parliament, ECB President Lagarde stated that the central bank would make sure that higher borrowing needs by governments would not translate into higher interest rates for the private sector. She reiterated that the bank remained committed to its mandate and will continue to monitor the proportionality of its instruments. Overall confidence in the single currency remained firm as German bond yields moved higher.

There was an element of caution ahead of Wednesday’s Federal Reserve policy meeting with markets waiting for fresh guidance from the central bank.

Overall, EUR/USD settled just below 1.1300 at the European close with the dollar hampered by fresh gains across the commodity currency complex. There were expectations of slightly less dovish Fed rhetoric with EUR/USD little changed in early Europe on Tuesday.

Overall risk appetite held firm ahead of the New York open on Monday, but the yen was able to resist selling pressure with USD/JPY initially retreating towards the 109.00 area as the Japanese currency secured a wider correction stronger. The New York Federal Reserve survey recorded an increase in inflation expectations due to expectations of higher fuel and food prices which could have some impact on the Fed statement and consumers were slightly more optimistic over their finances.

The yen gained further notable ground during US trading with lower oil prices also having some impact in supporting the Japanese currency as USD/JPY retreated to lows around 108.25. The yen gained support despite further significant gains in US equities as the Nasdaq index posted a record high with the steeper yield curve also not having any impact in supporting the US currency with a decline in reduction in selling of defensive currencies.

The yen maintained a firmer tone in Asia on Tuesday with USD/JPY dipping to just below 108.00 before trading just above this level in early Europe with EUR/JPY just below 122.0.

A spokesman for Prime Minister Johnson stated that the intention is to open non-essential retail outlets from June 15th, but the opening would be conditional with restaurants and cafes not opening until July 4th. The gradual re-opening of the economy provided an element of UK support, although there were still important concerns that the UK would lag behind other European economies which limited potential support.

Sterling also gained some support from expectations of a recovery in the global economy, especially with commodity currencies still making net gains on the day.

Bank of England chief economist Haldane stated that economic activity has collapsed and that the bank was possibly seeing an unprecedented level of inactivity in the labour market due to furloughed staff and people being made unemployed. There was, however, no significant reaction to the comments with Sterling holding firm. BRC data recorded a like-for-like annual increase in retail sales of 7.9%, but overall sales declined 5.9%.

Economic Calendar