Sterling holds above 1.3000
Global risk appetite remained stable yesterday with much of the focus on sharp gains in precious metals. Sterling gained some support from the very expansionary monetary policies by all major central banks globally which helped to offset the very low UK bond yields. There was significant uncertainty ahead of Thursday’s Bank of England policy meeting, particularly the forward guidance. There were also fears for employment as the number of employees on furlough increases. When the scheme starts to wind down and employer contributions increase, the jobless total is liable to increase sharply and there have been further announcements of substantial job losses.
The Pound dipped below 1.3000 against a stronger US Dollar, but there was solid Pound buying support on the dips. The Euro was supported near 1.1111 and pushed near to 1.1060 before settling in the middle of this range. This morning Sterling edged towards 1.3100 again as the Dollar remained on the defensive.
US factory orders increased 6.2% for June following a 7.7% advance the previous month and above consensus forecasts of 5.0%. The IBD consumer confidence index edged higher to 46.8 from 44.0 previously. The New York ISM business conditions index strengthened to 53.5 from 39.5 the previous month. The data releases had little impact ahead of Friday’s jobs report amid concerns that the recovery momentum was stalling.
There were further sharp gains in precious metals on Tuesday with spot gold moving above the $2,000 level for the first time as silver also made strong gains. Strong demand for gold underlined a lack of underlying confidence in the US currency, especially with a lack of interest rate support. Real 10-year interest rates dipped further to record lows around -1.1% which further eroded dollar sentiment.
The Euro is trading around the 1.1815 against the Dollar as the US currency continues in struggling to sustain a convincing correction. The common currency is once again finding fresh legs in bullish territory with markets enthused in the re-assessment of European growth prospects in light of progress on the EU recovery fund.
Rhetoric given by the ECB will be the focus in the short term as further choppy trading looks the most likely.
Data to watch
12:15 – USD – ADP Non-farm Employment Change
14:00 – USD – ISM Non-Manufacturing PMI
14:30 – USD – Crude Oil Inventories