Sterling was boosted by firmer risk conditions and short covering..
The US NAHB housing index dipped sharply to 55 for July from 67 previously which was well below consensus forecasts of 66 and the lowest reading since May 2020.
Federal Reserve officials have commented on the importance of the housing sector for calibrating their interest rate decisions and degree of monetary tightening required. The weaker than expected NAHB data was another important facto dampening expectations of a more aggressive Fed rate hike at this month’s policy meeting.
Given the notable Fed focus on inflation expectations in making policy decisions, fears over a 100 basis-point hike this month faded after the Michigan confidence data. At this stage, markets were more confident that the Fed would hike rates by 75 basis points.
Lower yields and hopes that Fed will be able to take a slightly less aggressive stance underpinned risk appetite on Monday.
US equities, however, failed to hold gains and there were net losses as selling pressure increased again.
Bank of England external member Saunders warned that price pressures could be harder to stop than the bank’s central forecasts due to a declining potential growth rate. He added that he thought the tightening cycle still had some way to go and it was plausible that rates could increase to at least 2.0%. He added that the cost of tightening too slowly was probably higher than the risk of raising rates too much and it was not correct that a neutral rate is 1%.
The rhetoric remained broadly hawkish, although the overall impact was relatively limited given that Saunders has been consistently hawkish and will also leave the Monetary Policy Committee after the August meeting.
The latest UK jobs data recorded a larger than expected employment increase for June, but there was a weaker than expected figure for headline average earnings with the year-on-year increase at 6.2% from 6.8% previously.
A limited decline in European gas prices provided some relief for the Euro during Monday. There was caution ahead of Thursday’s ECB policy meeting. There were still important reservations over the Euro-Zone outlook.
Weaker than expected US housing data undermined dollar support. Defensive US dollar support also faded during the day as equities rallied. The dollar regained some ground later in the day as Wall Street stumbled. EUR/USD posted strong gains to 1.0200 before fading and traded just above 1.0150 on Tuesday with buying on dips.
Lower US yields undermined USD/JPY with a dip to test support below 138.00.
The Swiss franc lost ground as Swiss sight deposits stabilised. EUR/CHF posted gains to 0.9925 before fading wth USD/CHF around 0.9760.
Sterling was boosted by firmer risk conditions and short covering. GBP/USD advanced to highs above 1.2000 before a retreat and it traded around 1.1970 on Tuesday with solid buying on dips. GBP/EUR edged higher to the 1.1800 area.
Commodity currencies posted net gains as risk appetite improved and the US dollar lost ground. AUD/USD retreated highs just above 0.6850, but with support close to 0.6800 and fresh gains to 0.6850 on Tuesday. USD/CAD dipped to lows at 1.2900 before a correction to 1.2960.
|07:00||GBP Average Earning Including Bonus(MAY)||7.60%||6.80%|
|07:00||GBP Claimant Count Change(M/M)(JUN)||-19.7K|
|07:00||GBP Unemployment Rate(MAY)||3.60%||3.80%|
|07:00||CHF Trade Balance(JUN)||3.116B|
|10:00||Euro-Zone Core CPI (Y/Y)(JUN 01)||3.80%||3.70%|
|10:00||Euro-Zone CPI (M/M)(JUN)||0.80%||0.80%|
|10:00||Euro-Zone CPI (Y/Y)(JUN)||8.10%||8.60%|
|13:30||USD Building Permits(JUN)||1785M||1.695M|
|13:30||USD Building Permits (M/M)(JUN)||-7.00%|
|13:30||USD Housing Starts(JUN)||1.701M||1.549M|
|13:30||USD Housing Starts (M/M)(JUN)||-14.40%|