As the economic calendar was lacking important data, the European session was quiet with the markets digesting the release of the German industrial production and the Halifax house price index, the only closely watched indicators of the day. Moreover, while investors were focused to catch any hints from the two-day OPEC/non-OPEC meeting launched today, energy prices initially edged higher before backtracking later in the day.
The dollar was more or less steady against its rivals during European trading, with the dollar index moving sideways around 93.30. Earlier, the dollar fell below its one-week high of 93.61 reached on Friday when better than expected non-farm payrolls pushed the dollar higher. Now, investors who continue being cautious about the political developments in the US, expect CPI and PPI data, to be released at the end of the week, in order to get more evidence on the subdued inflation. Based on forecasts, analysts anticipate the core CPI to grow flat at 1.7% in July year-on-year and the PPI to increase by 2.2% from the 2% estimated in June. Any improvements in inflation would motivate Fed policymakers to hike rates for the third time this year and reduce the Fed’s overloaded balance sheet sooner.
The euro struggled to hold onto its intraday gains after German industrial production for the month of June disappointed forecasts. German industrial output surprisingly plummeted for the first time this year by 1.1% in June month-on-month from a positive 1.2% observed in May, while analysts anticipated output to rise moderately by 0.2%. This weighed on Germany’s benchmark 10-year government bond yield which scaled back on Monday by one basis point to 0.46 percent from 0.47 percent seen on Friday amid concerns that the ECB will unwind its ultra-easy monetary policy later rather than sooner.
Euro/dollar was last eyeing the 1.18 handle, while euro/yen was up by 0.26% at 130.68. Meanwhile, euro/pound hit a fresh 11-month high of 0.9060 during today’s trading.
Sterling followed a downward path after not so optimistic comments from a former top diplomat pushed the currency down by 0.20% to $1.3024. Simon Fraser, who was the senior civil servant at Britain’s Foreign Office and the head of the UK Diplomatic Service until 2015 said on Monday that Brexit negotiations have not started "promisingly, frankly on the British side", attributing the outcome to disagreements between May and her team on the type of deal they want to conclude with the EU. Despite May’s spokesman expressing his opposition to this as well as to Sunday’s news of Britain agreeing to pay a £40 billion EU exit bill, the pound could not bounce back. Moreover, the Halifax house price index which was released earlier in the day and which rose slightly above expectations, could not support sterling either. The index which is estimated by the Halifax Bank of Scotland, one of the largest mortgage lenders in the UK, increased by 2.1% in July year-on-year, below June’s reading of 2.6% but above the mark of 2% forecasted by analysts. On a monthly basis, the index improved from a negative 0.9% in June to a positive 0.4%. Expectations were set at a growth of 0.2%.
Regarding energy markets, WTI and Brent were last down 1.8% and 1.7%, trading at $48.66 and $51.50 per barrel respectively. OPEC and non-OPEC members are gathering in Abu Dhabi on Monday and Tuesday to discuss their compliance regarding output cuts. Meanwhile, other news out of the industry were that Libya’s largest oilfield, Sharara, is getting ready to shut down according to an engineer working in the field, as the field is said to have been attacked by an army group. This development provided some short-term boost to oil prices during afternoon European trading hours.
