It was a relatively quiet forex trading session for Europe on Tuesday, as the 4th of July holiday in the US brought down volumes and overall activity.
The main news of the day was the test of a long-range missile by North Korea, which led investors to seek the safety of havens such as the yen and gold. The gains by both the yen and gold were relatively modest however, suggesting that the North Korean action did not unsettle investors too much. Dollar/yen fell to as low as 112.84 but managed to recover to 113.23, while gold traded in the $1223-1225 an ounce range. Both gold and the yen were under pressure during the previous days.
The dollar was up both against the pound and the euro, but did not manage to benefit much from the positive momentum of the previous day’s better-than-expected ISM manufacturing PMI. Euro/dollar fell to 1.1343 and pound/dollar fell to 1.2925.
In other economic news, the ECB’s Chief Economist, Peter Praet, sounded a cautious note with respect to potential interest rate increases in the Eurozone. Low interest rates were a key condition of the plan to raise inflation to the ECB’s 2% target, according to Praet. The speech moderated the optimism of some market participants that the ECB would shift to an outlook of gradual tightening in the near future.
In the UK, construction PMI for June came in close to expectations at 54.8. Analysts had forecasted 55.0 whereas the previous month’s figure was at 56. UK manufacturing PMI was disappointing the previous day, which had weighed on sterling.
The Australian dollar managed to stabilize versus the US dollar around the 0.76 mark after suffering a significant drop following the release of the Reserve Bank of Australia’s policy statement during Asian trading. The central bank was not as hawkish as some had expected and there was little in the statement that pointed in the direction of a rate hike soon.
The Riksbank in Sweden announced that it was now less likely to cut rates further, although it also did not completely rule out more easing. Sweden’s policy rate currently stands at -0.50%. The Swedish Krona lost ground versus the euro to trade around 9.6760 compared with 9.6442 at the close of US trading the previous day.
Crude oil was under some pressure during Tuesday’s Asian session, but managed to recover to cross above the $47 a barrel mark (WTI contract) to $47.23. This also had a positive effect on the Canadian dollar as USD/CAD fell below 1.2946.
Looking ahead, the bi-weekly dairy auction results were eagerly expected by kiwi traders. With respect to the remaining days of the week, Wednesday’s Fed meeting minutes and Friday’s employment report out of the US were the two highlights for the US dollar.
