Sterling recovered from intra-day lows but struggled to make headway amid coronavirus reservations.

Risk appetite was slightly more defensive on Tuesday, although equities overall were resilient. Narrow ranges prevailed ahead of Friday’s US jobs data with wariness over month-end position adjustment. US bond yields were little changed with little market impact. Wall Street equities posted limited gains amid underlying optimism over the growth outlook.

The dollar overall posted significant net gains with further short covering. EUR/USD dipped to lows around 1.1880 before settling around 1.1900. Sterling recovered from intra-day lows but struggled to make headway amid coronavirus reservations. Commodity currencies lost ground as the US dollar strengthened.

Euro-zone industrial business confidence strengthened to 12.7 for June from 11.5 previously with a strong improvement in services-sector sentiment to 17.9 from 11.3. The overall business and consumer confidence index strengthened to 117.9 from 114.5 the previous month and the highest reading for over 20 years.

The Euro was unable to make any headway ahead of the New York open with the dollar maintaining a firm tone. There was further evidence of dollar short covering with a flow of funds out of commodity currencies underpinning the US currency.

German consumer prices increased 0.4% for June, in line with consensus forecasts and the year-on-year increase slowed to 2.3% from 2.5% previously.

The Case-Shiller house price index increased 1.6% for April with the year-on-year increase strengthening to a 15-year high of 14.9% from 13.4% previously.

US consumer confidence strengthened to a 16-month high of 127.3 for June from 120.0 previously and well above market expectations with notable gains for the current conditions and expectations component. Confidence in the labour market increased while inflation expectations also increased.

Equity markets held firm, but there was an element of caution surrounding global coronavirus trends which could undermine the global economy and lead to an increase in defensive dollar demand. Overall, EUR/USD declined to lows near 1.1875 before a recovery to 1.1900 as the dollar retreated from its best levels.

The focus will switch to labour-market data on Wednesday with the ADP release and EUR/USD was held close to 1.1900 with markets also wary over month-end position adjustment.

US Treasuries were little changed after the New York open with the 10-year yield held below 1.50%.  Equity markets held firm, but the yen was notably resilient with the dollar unable to make headway and USD/JPY traded just below the 110.50 level.

Richmond Fed President Barkin stated that prices will come back as has been the case for lumber, but the environment in 2022 will matter a lot and he also noted that he expected strong gains in employment for August and September. Fed Governor Waller stated that inflation will stay above target over the next few months and he did not rule out a 2022 rate hike, although this would need inflation to remain at a very high rate.

China’s PMI manufacturing index was little changed at 50.9 while the services index declined to 53.5 from 55.2, although this was above consensus forecasts which provided some relief. The dollar was held in narrow ranges in Asian trading and USD/JPY consolidated close to 110.50 with EUR/JPY around 131.50.

Nationwide reported an increase in UK house prices of 0.7% for June with the year-on-year rate at 13.4% from 10.9% previously and the highest reading for 16 years.

UK mortgage approvals increased to 87,600 for May from a revised 86,900 previously and above consensus forecasts with a strong increase in mortgage lending on the month. There was a significant shift in the credit data with consumers increasing net borrowing for the first time since last August. The £0.3bn increase in consumer credit followed net repayments for most months during the pandemic.

Sterling was unable to make any headway on the data with GBP/EUR posting net losses to the 1.1630 area while there was a GBP/USD retreat to 1.3820.

Sterling was hampered by concerns over a sharp increase in coronavirus infections, although the government continued to push for the easing of business restrictions on July 19th. Hospitalisation rates will continue to be monitored very closely in the short term.

GBP/USD consolidated around 1.3850 with the Euro marginally lower at the European close as markets also monitored trade developments.

The Lloyds business barometer was unchanged on the month while shop prices declined 0.7% in the year to June despite upward pressure on costs. Sterling was little changed on Wednesday with GBP/EUR just below the 1.1630 level, although with the risk of choppy month-end trading later in the day.

Economic Calendar

Expected Previous
07:00 GBP Total Business Investment (Q/Q) -11.90%
07:00 United Kingdom GDP (Q/Q) -1.50% -1.30%
07:00 United Kingdom GDP (Y/Y) -6.10% -7.80%
07:45 Consumer Spending MM(MAY) -0.10%
08:00 CHF KOF Leading Indicator(JUN) 136 143.2
08:55 German Unemployment Rate(M/M)(JUN) 6.00%
09:00 CPI (EU Norm) Prelim MM(JUN) 0.00%
09:00 CPI (EU Norm) Prelim YY(JUN) 1.30%
09:00 CPI (EU Norm) Final MM*(JUN) -0.10%
09:00 CPI (EU Norm) Final YY*(JUN) 1.20%
12:00 USD MBA Mortgage Applications 2.10%
13:30 CAD GDP (M/M)(MAY) -0.80% 1.10%
13:30 CAD RMPI (M/M)(MAY) 1.00%
15:00 USD Pending Home Sales (Y/Y)(MAY, 2020) 106.20%
15:00 USD Pending Home Sales (M/M)(MAY) -4.40%
15:30 USD Crude Oil Inventories -7.614M

*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.