Trading conditions remained tentative ahead of Powell’s Jackson Hole speech on Thursday.
Trading conditions remained tentative ahead of Powell’s Jackson Hole speech on Thursday with narrow ranges prevailing. Overall risk conditions were more cautious amid uncertainty over the global recovery, but coronavirus vaccine optimism limited any adverse trends.
The dollar was unable to hold intra-day gains and faded with little net change on the day. EUR/USD found support below 1.1800 with selling on approach to 1.1850. Sterling held net gains despite a retreat from intra-day highs and fundamental reservations with GBP/EUR fractionally above 1.1130.
The Swiss franc was again resilient during the day. Commodity currencies posted net gains as the US dollar failed to gain traction.
The German IFO business confidence index strengthened to 92.6 for August from 90.4 previously and above consensus forecasts of 92.2. The current conditions component advanced to 87.9 from 84.5 previously while the expectations index advanced slightly to 97.5 from 96.7, although this was slightly below market expectations. The data underpinned confidence in the outlook, although there were still reservations over the services-sector outlook.
The Euro was able to make limited gains following the data and held an advance into the New York open, although progress was limited with EUR/USD selling near 1.1850.
US consumer confidence declined to a 6-year low of 84.8 for August from a revised 91.7 previously and below consensus forecasts of 93.0 with significant monthly declines in both the current conditions and expectations components. There was fresh deterioration in confidence surrounding the labour market for the month.
New home sales increased to an annual rate of 901,000 for July from a revised 791,000 the previous month and well above market expectations of 785,000.
The Richmond Fed manufacturing index strengthened to 18 from 10 previously with an increase in new orders on the month. There was also an increase in employment on the month and companies reported a sharp decline in the availability of skills needed.
The dollar overall edged higher following the US releases as a more defensive tone surrounding risk appetite tended to protect the US currency. Overall, EUR/USD drifted towards the 1.1800 level, but the dollar was unable to sustain gains as underlying sentiment remained notably cautious.
The German government announced that labour-market subsidies would be extended until the end of 2021, but markets were uneasy over coronavirus developments. There was further caution ahead of Fed Chair Powell’s speech on Thursday with EUR/USD just above 1.1815 on Wednesday after again fading from highs near 1.1840.
Gains in global equity markets were significant in undermining the Japanese currency ahead of Tuesday’s New York open with sharp Japanese currency losses on the crosses. USD/JPY strengthened to highs just above 106.50 while EUR/JPY strengthened to near 126.0.
The yen struggled to regain traction even with a slightly more defensive risk tone as optimism over potential coronavirus vaccine developments continued.
Richmond Fed President Barkin stated that companies were reluctant to hire and invest due to uncertainties. Markets continued to monitor US political rhetoric surrounding the Republican convention while there were no significant developments on US fiscal policy during the day.
Japan announced that the worker subsidy programme would be extended until the end of 2020, but a former Bank of Japan member stated that the central bank would not ease policy further. There was, however, further uncertainty over Prime Minister Abe’s health and political future with a press conference scheduled for Friday. The yuan strengthened to 7-month highs which helped underpin risk appetite, although equities lost ground in Asia with USD/JPY unable to hold above the 106.50 level.
The UK CBI retail sales survey dipped to -6 for August from 4 the previous month and below consensus forecasts of 7. Sales are also forecast to decline at a faster pace in September with a reading of -17 for the expectation’s component. Orders are forecast to decline sharply for the month, although retailers do expect the situation to improve over the next few months. Labour-market trends will be an important focus with August employment cut at the fastest pace since February 2009 and companies expect the rate of job cuts to increase further in September. Sterling held firm despite reservations over the outlook.
The UK currency gained an element of support from firm global risk appetite as global equity markets held a firm tone, although UK equities moved lower.
Sterling maintained a strong tone into the New York open and GBP/USD extended gains to 1.3170 against while GBP/EUR rallied to just above the 1.1130 level.
|09:00||CHF ZEW Expectations(AUG)||-||42.4|
|13:30||USD Durable Goods Orders Ex Transportation(JUL)||2.00%||3.60%|
|13:30||USD Durable Goods Orders (M/M)(JUL)||3.30%||7.60%|