Sterling lost ground amid an underlying lack of confidence in the outlook.

US retail sales were unchanged in July after a revised 0.8% increase the previous month and marginally below consensus forecasts. Underlying sales increased 0.4% on the month while the control group recorded a 0.8% increase after a 0.7% gain in July.

The data overall curbed immediate concerns over retail spending, although the data is not adjusted for prices and there were mixed price trends for the month with a sharp decline in gasoline prices.

Fed minutes stated that some participants noted that the policy rate would have to reach a
sufficiently restrictive level to control inflation and remain there for some time. There were also comments that there had been little progress in curbing inflation pressures, although supply-side improvements could help.

Officials, however, saw a slower pace of rate hikes at some point and many officials also saw the hazard that the central bank could tighten more than necessary.

Following the Fed minutes there was a limited shift in market expectations surrounding the September policy meeting with markets pricing in around a 60% chance of a 50 basis-point rate hike.

The latest Philly Fed manufacturing survey will be released on Thursday and will be watched very closely following the much weaker than expected New York survey released earlier in the week.

The headline Australian employment report was notably weaker than expected with a decline of close to 41,000 for July, but the unemployment rate declined to a fresh 48-year low of 3.4% from 3.5% previously as the participation rate declined sharply.

The data overall suggested that the labour market remained very tight.

The Norges Bank is expected to raise interest rates again at Thursday’s policy meeting.
Market expectations are for a further 50 basis-point hike to 1.75% with forward guidance crucial.

Overall confidence in the Euro-Zone economic outlook remained very fragile amid fears over higher gas prices which traded at record highs on Wednesday. There was only a measured impact from the US retail sales. EUR/USD found support just below 1.0150 but rallies stalled at 1.0200.

The Fed minutes triggered limited dollar selling, but with no sustained reaction as underlying US sentiment remained firm and EUR/USD settled around 1.0160.

Higher US bond yields limited potential yen support. USD/JPY peaked close to 135.50 before fading to trade around 135.30.

The Swiss franc lost ground for a second successive day. EUR/CHF strengthened but stalled close to 0.9700 with net USD/CHF gains to 0.9530.

Sterling lost ground amid an underlying lack of confidence in the outlook and long-term
competitiveness fears. GBP/USD drifted lower and continued to lose ground to trade around 1.2020 on Thursday.

Commodity currencies lost ground amid a firm dollar and a weaker Wall Street tone. There was a muted response to the Australian jobs data. AUD/USD lost support at 0.7000 with lows near 0.6910 before consolidation around 0.6920. USD/CAD peaked near 1.2940 and settled around 1.2930.

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