Dollar posted a further net advance amid expectations of Fed tightening.

Expectations of US and global growth trends continued to have an important impact on global markets. There were stronger expectations of Fed tightening this year. US bond yields posted 2-week highs in choppy conditions in Treasuries.

Risk appetite held steady with some speculation over a Chinese rate cut offsetting unease over short-term trends. Wall Street equities drifted lower while Asian markets posted limited net gains.

The dollar posted a further net advance amid expectations of Fed tightening. EUR/USD dipped to fresh 4-month lows around 1.1730. Sterling was little changed overall with EUR/GBP just above 17-month lows. Commodity currencies were resilient, but with net losses amid US currency strength.

The Euro-zone Sentix investor confidence index declined to 22.2 for August from 29.8 previously and below consensus forecasts of 29.0. There was a slight increase in the current conditions index to the highest level since October 2018, but there was a sharp decline in the expectations index and the lowest level since May 2020.

The Euro remained weak into the New York open and EUR/USD dipped to fresh 4-month lows against the dollar, although there was further support below the 1.1750 level.

Tight ranges prevailed on Monday which is often the case on the first day following the monthly US jobs report even if there is substantial impact from the data itself.

Atlanta Fed President Bostic stated that substantial further progress could be achieved in the next month or two. He added that the Fed could taper between October and December, but was open to bring this forward. He also suspected that interest rates could increase late in 2022. Boston President Rosengren also called for an announcement in September that bond purchases will begin to slow this Autumn.

Underlying dollar confidence remained firm on expectations that the Federal Reserve would announce a tapering of bond purchases at the September policy meeting.

The US employment trends index strengthened to 109.80 from a revised 109.0 previously while the JOLTS data recorded an increase in job openings to a record high of 10.07mn for June from 9.48mn previously which maintained confidence in underlying labour-market strength.

The dollar maintained a firm tone after the European close with EUR/USD dipping to fresh 4-month lows near 1.1730 despite some resilience in commodity currencies.

The US currency maintained a strong tone on Tuesday with the unable to secure more than a very limited recovery while commodity currencies edged weaker.

After significant losses on Friday, US Treasuries recovered some ground in early US trading on Monday with the 10-year yield retreating to around 1.28% which limited the scope for further dollar support and USD/JPY  retreated to near 110.00 at the Wall Street open.

Markets continued to monitor developments on the infrastructure Bill with optimism that an overall deal would underpin the US growth outlook and the US Senate is due to hold a vote on Tuesday. US yields continued to move higher later in the day with USD/JPY posting renewed gains to the 110.30 late in New York.

Richmond Fed President Barkin stated that demand did not seem to be dented by the delta variant. He added that the economy has made headway towards its objectives with significant headway towards the taper benchmark. Upward pressure on wages was also intense at lower levels of the pay scale.

The overall rhetoric was relatively hawkish which helped underpin the dollar despite reservations over the coronavirus trends.

Equities were little changed on Tuesday with USD/JPY around 110.30 and EUR/JPY just above 129.50 as Japanese yen demand declined slightly.

Sterling held a firm tone in Europe on Monday with markets continuing to monitor global central bank developments and a potential tightening timeline. Overall, there were expectations that the Bank of England would be in the second wave of banks to reduce monetary stimulus. There were further expectations that the ECB would lag behind in tightening policy which continued to limit the scope for Euro support against the UK currency.

Overall risk appetite held relatively steady during the day despite concerns over coronavirus trends in China which provided an element of UK currency protection.

There was, however, GBP/USD resistance on approach to the 1.3900 level while GBP/EUR made new highs just above the 1.1815 level.

BRC data recorded a 4.7% annual increase in like-for-like sales while Barclaycard recorded an 11.6% increase in consumer spending compared with July 2019. Sterling was little changed on Tuesday with markets waiting for fresh drivers for the UK and global currencies as GBP/USD traded just below 1.3850

Economic Calendar

Expected Previous
10:00 German ZEW Survey (Current Situation) (AUG) 21.9
10:00 German ZEW Survey (Economic Sentiment)(M/M)(AUG) 63.3
10:00 EUR Euro-Zone ZEW Survey (Economic Sentiment)(AUG) 61.2
13:30 Nonfarm Productivity (Q/Q) 4.30% 5.40%

*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.