A weak US business confidence survey triggered fresh concerns over the US outlook, although the market impact was mixed as market concerns over the global outlook also increased. There was a significant lack of confidence in all major currencies with investors searching for safe-havens. The dollar edged lower, but losses were limited while the Japanese yen and Swiss franc held firm. There will be further caution ahead of Wednesday’s Federal Reserve key policy decision.
Pound Sterling (GBP)
Sterling remained firmly on the back foot during Monday with no impetus for traders to reverse their negative stance on the currency even with some caution ahead of Thursday’s Bank of England policy statement. Ahead of Tuesday’s second round ballot for Conservative Party leader, Johnson remained the firm favourite, maintaining Brexit concerns. Underlying confidence in the UK and global economies also remained weak which sapped support. GBP/USD declined to fresh 2-week lows near 1.2550 while GBP/EUR dipped to 5-month lows near 1.1150 and domestic politics will continue to be watched closely during Tuesday.
The German Bundesbank warned that the economy was liable to contract slightly for the second quarter, reinforcing concerns over the outlook and weak underlying conditions within the Euro-zone. German yields did, however, edge higher which provided an element of Euro protection. After finding support close to 1.1200, EUR/USD rallied to near 1.1250 after the weak US data before stumbling once again. EUR/USD edged higher again on Tuesday on current account strength with global risk conditions likely to dominate during the day. Underlying unease over the growth environment continued to underpin the Swiss currency.
In contrast to Friday, the latest US economic data was weaker than expected with a notably weak New York business survey. The data triggered fresh economic concerns and enhanced expectations that the Federal Reserve would cut interest rates this year. In this environment, the dollar lost ground, although selling was still limited with investors reluctant to abandon the US currency, especially given a lack of confidence in the global outlook. Despite initial resilience, USD/JPY retreated to 108.25 on Tuesday as the yen continued to gain defensive support with market positioning likely to be important ahead of Wednesday’s Fed meeting.
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