The euro underperformed its peers in today’s European session as a combination of option expiries and dovish ECB meeting minutes drove the single currency to three-week lows against the US dollar. The greenback managed to reverse around half of yesterday’s losses brought on by the FOMC minutes that showed growing concern among some Fed policymakers that inflation might remain below 2% for longer than anticipated.
In other currencies, the pound was unable to get much of a lift from stronger-than-expected retail sales data out of the UK, but the aussie surged on the back of sharp gains in metal prices.
The euro fell to its lowest since late July, touching $1.1661 (down almost 1%), before rebounding to around the $1.17 level. It was also lower against the yen and sterling, falling to 128.83 yen (a one-week low) and 0.9079 pounds. The euro had come under pressure earlier in the day from large option expiries but its losses were exasperated by the release of the European Central Bank’s accounts of the July policy meeting. The minutes lacked any hawkish tone and while the central bank signalled that a review of policy was forthcoming in the autumn, policymakers expressed concern about "the risk of the exchange rate overshooting in the future".
There was little support for the single currency from the final Eurozone CPI readings for July, despite an upward revision to the core rate. Headline inflation was confirmed at an annual rate of 1.3% in July, but core CPI was revised from 1.2% to 1.3% – the highest in four years.
UK retail sales were also released today, which came in above expectations. The month-on-month rate was up 0.3% in July, beating estimates of 0.2%, but the year-on-year rate moderated to 1.3% from 2.8% in June, missing forecasts of 1.4%. Reaction to the data was limited with the pound rising only briefly after the data as the stronger-than-expected figures for July were offset by downward revisions to the prior month’s numbers.
The pound spiked to $1.2905 after the data before dipping to as low as $1.2852, only to head back up again in late European session to trade around $1.2880.
In US data, jobless claims and the Philly Fed beat expectations but industrial output disappointed. Weekly jobless claims fell to 232k in the week starting August 7 – the lowest in six months. This was better than the expected 240k and down from 244k in the prior week. The Philly Fed’s manufacturing index fell to 18.9 in August from 19.5 in July, though this was above forecasts of 18.5. Finally, industrial output in the United States expanded by 0.2% m/m in July, slower than the prior 0.4% rate and below estimates of 0.3%.
The dollar firmed slightly after the robust jobless claims numbers but fell back following the soft industrial output numbers. However, the greenback held on to most of its gains posted after its Asian session lows when it had hit 109.64 yen. It was last trading slightly down on the day around 110.10 yen as political uncertainty surrounding President Trump weighed on the currency, in addition to yesterday’s dovish FOMC minutes.
Gold benefited from the risk-off associated with Trump’s decision yesterday to disband the White House business councils after several CEOs quit in protest to Trump’s remarks over the violence in Virginia involving far-right groups. A less hawkish Fed also boosted gold, with the yellow metal coming close to breaking above last week’s two-month high of just under $1292 an ounce.
Meanwhile, non-precious metals, specifically industrial metals, eased from their recent highs on profit taking. Expectations of rising demand from China, as well as from the Chinese government’s efforts to reform the country’s industrial sector by cutting overcapacity had driven copper and aluminium prices to three-year highs yesterday, while zinc had soared to a near 10-year high.
The metal rally has helped the Australian dollar to move away from one-month lows to climb to a two-week high of $0.7962 earlier today. The aussie eased to around $0.7920 in late session.
Oil prices continued to drift lower today, dropping to three-week lows. Another drawdown in US weekly crude stocks yesterday did little to boost prices as investors remained concerned about rising US output, which rose to the highest in two years last week. WTI crude was last trading slightly down on the day at $46.72 per barrel and Brent crude at $50.26 a barrel.
Looking ahead to the remainder of the day, speeches by Dallas Fed President, Robert Kaplan and Minneapolis Fed President, Neel Kashkari should attract some attention.
