The main economic releases during today’s European session pertained to durable goods orders out of the US and the Ifo business sentiment survey out of Germany. Beyond these, gold experienced a considerable decline and sterling received a boost after UK Prime Minister struck a deal with Northern Ireland’s Democratic Unionist Party which would support her minority government.
In US economic releases, durable goods orders fell by 1.1% in May. This negatively compares to the 0.6% drop expected and exceeds April’s decline by 0.9%. The data point to a loss in momentum in the manufacturing sector during the middle of the second quarter of the year.
In terms of reaction in the forex markets to the durable goods numbers, the dollar experienced sizable losses relative to majors including the yen and the euro as the data hit the markets. Dollar/yen fell to as low as 111.35. The pair traded at 111.66 previously. Euro/dollar rose to its highest on the day, at 1.1219, shortly after the figures were released. This also marks an eleven-day high for the pair which traded at 1.1188 before the data became public.
The dollar index, a broader gauge of the US currency’s strength, was down one-tenth of a percent in afternoon European trading hours. Earlier in the day, San Francisco Fed President (a non-voting FOMC member), John Williams delivered a hawkish speech during which he said "If we delay (hiking) too long, the economy will eventually overheat, causing inflation or some other problem." His talk failed to significantly lift the greenback as investors remain sceptical. The CME Group’s 30-day Fed Fund futures prices are currently placing the odds of another rate hike at less than 50% during the Fed’s December meeting. Dollar/yen was last up on the day, trading at 111.42. In the meantime, euro/dollar was up, above the 1.12 handle. Federal Reserve Chair Janet Yellen will be speaking tomorrow in London.
During morning European trading hours, the Ifo institute’s survey gauging business sentiment in Germany, Europe’s largest economy, was released. The institute’s business climate index for the month of June beat expectations, rising to the all-time high of 115.1 from May’s 114.6. Forecasts were for a reading of 114.5. The sub-indices measuring current business conditions and expectations for the future were also released above projections and their respective figures from the previous month. The German economy seems to be maintaining positive momentum, being helped by private consumption and dodging potential threats to growth for the time being such as Brexit developments and upcoming federal elections in September. The Ifo institute chief Clemens Fuest stated that "Sentiment among German businesses is jubilant". Despite the upbeat figures, euro/dollar edged lower, though not by much, upon immediate release of the data.
Sterling firmed up, hitting a one-week high of $1.2759 in early European session, amid the news that Theresa May was about to seal a deal with the Democratic Unionist Party, which would give her a better grip of the government. Such a deal materialized a couple of hours later. Pound/dollar eased later in the day but was last still marginally up on the day, trading at 1.2741. Relative to the euro, sterling was slightly lower in afternoon European trading, with euro/pound eyeing the 0.88 handle.
Taking a look at gold, the precious metal steeply declined as a result of a large sell order hitting the markets today. In particular, the commodity fell to the more than one-month low of $1235.84 an ounce. Reports made reference to an accidental sale with the seller trying to quickly make up for the mistake by placing long positions immediately after. The precious metal made up for a significant part of the loss but was still last trading more than 1.0% down on the day, at $1244.25 an ounce.
Looking ahead, European Central Bank President Mario Draghi is scheduled to give a speech at 17:30 GMT.
