US consumer confidence retreats further.

US consumer confidence declined to 95.7 for July from 98.4 in June which was below consensus forecasts of 97.4 and the lowest reading since February 2021. There was decline in the present conditions index and a small dip in the expectations component with consumers also slightly less confident in the labour market.

US new home sales declined sharply to an annual rate of 590,000 for June from a revised 642,000 previously and well below consensus forecasts of 660,000.

The Richmond Fed manufacturing index recovered to zero for July from -11 the previous month and above consensus forecasts of -12. There was a small increase in shipments for the month, but new orders and order backlogs contracted again. Employment growth slowed while skills shortages increased and there was a slight easing of inflation pressures.

The Euro dipped sharply on Tuesday with renewed fears surrounding the economic outlook as gas supplies through the Nord-Stream pipeline are due to be cut again this week. Gas prices hit fresh 4-month highs, reinforcing fears over the outlook.

The Swiss franc gained fresh support during Tuesday, primarily as a function of a loss of confidence in the Euro-Zone outlook. Weaker risk conditions and expectations of nominal franc gains to offset declines in real terms were also important in strengthening the Swiss currency.

The Euro came under heavy pressure and posted fresh 7-year lows below 0.9750 while the dollar was unable to make headway despite wider strength.

The US Federal Reserve is expected to increase interest rates by a further 75 basis points to 2.50% at Wednesday’s policy meeting.

The policy statement and rhetoric from Fed Chair Powell is likely to be crucial for the market
reaction. In particular, the balance between inflation pressures and the growth outlook will be
crucial elements for markets to digest.

The second-quarter Australian CPI data recorded a 1.8% increase in headline prices after a 2.1%
increase previously and marginally below expectations of 1.9%. Core prices met expectations with a 1.5% increase. Markets still expect a 50 basis-point Reserve Bank rate hike next week, but overall rate expectations were scaled back slightly following the data.

The Euro dipped sharply during European trading on Tuesday with renewed concerns over gas
supplies to Germany and the wider Euro-Zone impact. The dollar gained an element of support from corporate month-end buying. The US currency also gained an element of support on defensive grounds as equities moved lower. EUR/USD dipped sharply to lows around 1.0110.

EUR/USD recovered to near 1.0150 on Wednesday as the dollar faded slightly. US Treasuries failed to hold intra-day highs with the 10-year yields recovering to lows below 2.75%. USD/JPY found support below 136.50 and advanced to near 137.00 on Wednesday.

The Swiss franc posted strong gains with EUR/CHF sliding to fresh 7-year lows below 0.9750.
USD/CHF failed to make headway and traded around 0.9615 on Wednesday.

Sterling was broadly resilient despite weaker risk conditions and concerns over the UK outlook with a further element of short covering. GBP/USD found support below 1.2000 and traded just above 1.2050 on Wednesday. GBP/EUR rallied sharply to 2-month highs near 1.1895.

Commodity currencies retreated as risk appetite deteriorated and the US dollar gained ground.
USD/CAD rallied to around 1.2885 before a retreat to 1.2860. The Australian dollar lost some ground after the inflation data. AUD/USD dipped to lows around 0.6910 before settling around 0.6935.

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