UK Preliminary Services PMI drops to 53.3 in July vs. 53.0 expected

UK Manufacturing PMI eases to 52.2 in July, beats estimates.

Services PMI in the UK comes in at 53.3 in July, better than forecasts. 

GBP/USD keeps the rebound intact at around 1.2050 on upbeat UK PMIs.

The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dropped to 52.2 in July versus 52.0 expected and 52.8 – June’s final reading.

Meanwhile, the Preliminary UK Services Business Activity Index for July arrived at 53.3 when compared to June’s final score of 54.3 and 53.0 expected.

Chris Williamson, Chief Business Economist at S&P Global, commented on the survey

“UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early-2021. Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just 0.2% GDP growth.“

“Forward-looking indicators suggest worse is to come. Manufacturing order books are now deteriorating for the first time in one and a half years as inflows of new work are insufficient to keep workforces busy, which is usually a precursor to output and jobs being cut in coming months."

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EUR/USD remains vulnerable near 1.0400 amid ECB news, choppy USD

EUR/USD is struggling to extend the recovery above 1.0400.

The US dollar remains choppy despite risk-aversion at full speed.

ECB officials said to want new policy instrument ready by the July meeting

EUR/USD is attacking 1.0400, unable to sustain the recovery near the 1.0425 region, as EUR bulls remain unimpressed by the latest European Central Bank (ECB) news.

Reuters reported that European Central Bank (ECB) officials are said to want a new instrument, which will be used to counter the fragmentation issue, ready by the July Governing Council meeting.

Further, the upside attempts in the pair remain elusive, as the risk-on market profile keeps the sentiment around the US dollar buoyed. The rebound in the longer-dated US Treasury yields on the 75 bps Fed rate hike is also underpinning the dollar demand.

Meanwhile, investors assess the cautious policy guidance adopted by the Bank of England (BOE) this Thursday after it hiked rates by 25 bps, as expected. The GBP/USD slump-induced support received by EUR/GBP is cushioning the losses in the shared currency against the dollar, as of writing.

Attention now turns towards a slew of second-tier US economic releases and the Wall Street open for fresh trading impetus on EUR/USD.

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GBP/USD dives back closer to YTD low, around 1.2160 area amid broad-based USD strength

GBP/USD witnessed selling for the fourth straight day and dropped back closer to the YTD low.

Disappointing UK macro data fueled recession fears and weighed heavily on the British pound.

Aggressive Fed rate hike bets and the risk-off mood benefitted the USD and added to the selling.

The GBP/USD pair added to its heavy intraday losses and weakened further below the 1.2200 round-figure mark heading into the North American session. The pair was last seen trading around the 1.2160-1.2165 region, just a few pips above the YTD low touched on May 12.

The monthly UK GDP report released earlier this month showed that the economy contracted by 0.3% in April, marking the first 

back-to-back decline since the start of the coronavirus pandemic. Adding to this, the UK Industrial and Manufacturing Production slumped for the second straight month. The lacklustre macro data fuelled fears that Britain could be headed for a recession and clouded the outlook for the Bank of England. This, along with Brexit woes and UK political jitters, took its toll on the British pound.

In the latest Brexit-related developments, the UK government will publish plans to scrap parts of the post-Brexit deal concerning the Northern Ireland Protocol. This would set the stage for a further deterioration in post-Brexit UK-EU relations and possibly spark a trade war in the middle of the cost-of-living crisis. Apart from this, the uncertainty over Boris Johnson’s future as the UK Prime Minister further undermined sterling and dragged the GBP/USD pair lower for the fourth straight day amid broad-based US dollar strength.

The red-hot US consumer inflation data released on Friday fueled speculations that the Fed would tighten its policy at a faster pace and opened the door for a jumbo 75 bps rate hike. This, in turn, pushed the yield on the 2-year Treasury note - seen as a proxy for the Fed's policy rate - to 3% for the first time since 2008. Adding to this, the yield on the benchmark 10-year US government bond shot to the highest level since 2018 and underpinned the buck.

Meanwhile, the prospects for a more aggressive move by major central banks, along with the worsening global economic outlook, continued weighing heavily on investors' sentiment. This was evident from an extended selloff in the equity markets, which provided an additional boost to the greenback's relative safe-haven status. The combination of factors exerted downward pressure on the GBP/USD pair and took along short-term trading stops near the 1.2200 mark.

Some follow-through selling below the YTD low, around the 1.2155 region would be seen as a fresh trigger for bearish traders and set the stage for additional losses. That said, traders might refrain from placing aggressive bets ahead of the key central bank event risks later this week. The Fed is due to announce its policy decision on Wednesday and the BoE meeting is scheduled on Thursday. The outcome should provide a fresh directional impetus to the GBP/USD pair.

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European Stocks Lower; Russian Gas Move, Bank Earnings in Focus

European stock markets traded largely lower Wednesday, as investors digested ramped up geopolitical tensions, a troubled global growth outlook as well as mixed quarterly corporate earnings.

By 4:05 AM ET (0805 GMT), the DAX in Germany traded 0.3% lower, the CAC 40 in France fell 0.1%, while the U.K.’s FTSE 100 climbed 0.2%.

Tensions over the Russia-Ukraine conflict were heightened Wednesday after Gazprom, Russia's state-owned energy giant, confirmed that it has stopped supplies to Poland and Bulgaria. 

It's the first time that Russia has interrupted supplies to EU members in over 40 years of shipping natural gas, caused crude prices to rise and increased concerns about Europe’s energy security.

Russia is demanding payments for its gas in rubles as sanctions over its invasion of Ukraine bite, something that most western countries are not prepared to comply with as that could undermine the sanctions.

By 4:05 AM ET, U.S. crude futures traded 0.2% higher at $101.86 a barrel, while the Brent contract rose 0.2% to $104.84. Both benchmarks gained around 3% on Tuesday.

European equity indices have also been pressured by worries that China’s insistence on stringent COVID restrictions will harm domestic and global growth as well as the hawkish pivot from the Federal Reserve potentially slowing growth at the world’s largest economy.

These factors resulted in consumer confidence in the euro area’s two biggest economies falling more than anticipated. In Germany, data dropped to an all-time low, while French figures declined to the lowest since 2018.

It’s a big day for earnings in Europe, with the banking sector once more to the fore.

Deutsche Bank (ETR:DBKGn) stock slumped 5.6% after the German lender warned that the Russia-Ukraine conflict could hurt full-year results, saying its funds set aside for credit losses are expected to increase "significantly" this year.

Credit Suisse (SIX:CSGN) stock fell 1.6% after the Swiss bank posted a first-quarter loss along with another set of top management departures. 

By contrast, Lloyds (LON:LLOY) stock rose 2.4% after the U.K. lender lifted its full-year outlook with demand for mortgages holding up even as it warned of the dangers to the British economy from higher inflation. 

Elsewhere, GlaxoSmithKline (NYSE:GSK) stock rose 0.7% after the pharmaceuticals giant beat expectations for its first-quarter results, helped by buoyant sales of its COVID-19 treatment.

Mercedes Benz Group (OTC:DDAIF) stock rose 1.4% after the carmaker confirmed its guidance for the full-year with high prices making up for supply chain troubles, Telia (ST:TELIA) stock advanced 1.1% after the Swedish telecoms operator posted better-than-expected quarterly earnings, and DSV (CSE:DSV) stock climbed 2.7% after the Danish transport company raised its 2022 outlook.

There were also significant earnings after Tuesday’s close on Wall Street, with Google parent Alphabet (NASDAQ:GOOGL) reporting first-quarter revenue below expectations, while software giant Microsoft (NASDAQ:MSFT) forecast double-digit revenue growth for its next fiscal year.

There are more significant U.S. earnings releases Wednesday from companies such as Meta Platforms (NASDAQ:FB), T-Mobile (NASDAQ:TMUS), and Boeing (NYSE:BA).

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EUR/USD unlikely to gain traction while below 1.0830

EUR/USD has staged a modest rebound to the 1.08 area. Unless the pair manages to clear the 1.0830 resistance, sellers are likely to continue to dominate the pair's action.

1.0760 aligns as key near-term support for the euro

“Investors will keep a close on US T-bond yields. In case the 10-year yield rises above 3%, EUR/USD could come under renewed bearish pressure.”

“In order to extend its rebound, EUR/USD needs to clear the static level that seems to have formed at 1.0830. Above that level, the 1.0850/1.0860 area (50-period SMA, static level) aligns as the next hurdle ahead of 1.09 (static level, psychological level).”

“On the downside, key support is located at 1.0760 (static level, post-ECB low). If that level turns into resistance, 1.0730 (April 24, 2020, low) and 1.07 (psychological level) could be seen as the next bearish targets.”

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 Euro gains respite from Macron's French election lead

The euro looked set to snap a seven-day losing streak versus the dollar on Monday, as the single currency rallied after French leader Emmanuel Macron beat far right challenger Marine Le Pen in the country's first round of presidential voting.

Investor concerns about the future direction of the euro zone's second-biggest economy have weighed on the euro and added to worries over the economic costs of war in Ukraine.

Meanwhile, the dollar has been pushed higher by rising U.S. yields and expectations the Federal Reserve will act quickly to stem inflation. One of the big fallers has been the Japanese yen, which fell to a fresh seven-year low versus the dollar.

Macron will face Le Pen in what promises to be a tightly fought French presidential election runoff on April 24.

Nonetheless, Macron's lead in the first round provided some respite for the euro - lifting it by as much as three quarters of a percent in Asian trading hours to $1.0955. It was last up 0.3% at $1.09080.

Currency analysts said the contest remained on a knife-edge with negative implications for the euro.

"The narrower than expected victory for President Macron will keep alive fears that there is an outside chance that Le Pen can become president," analysts at MUFG said in a note.

"The first-round results and the opinion polls pointing towards a close result in the second round will remain a modest weight on the euro in the coming weeks."

The dollar index - which tracks the greenback against a basket of six peers - was broadly flat on the day, just shy of the 100 mark hit last week for the first time in nearly two years.

As the dollar has gained ground, investors have seen little reason to exit bets against the yen while the Bank of Japan holds yields near zero.

The yen fell as much as 1% on the day to 125.55 yen per dollar, its lowest level since 2015.

"There's nothing there to frighten people out of dollar/yen positions," said National Australia Bank (OTC:NABZY)'s head of foreign exchange Ray Attrill. "So onwards and upwards for dollar/yen."

Sterling was broadly flat versus the dollar at $1.30380.

The Russian rouble weakened in jittery trade, reversing some of the previous week's gains, after the central bank decided to relax temporary capital control measures.

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 Dollar Edges Lower Ahead of Fed Minutes; Aussie Dollar Soars

The U.S. dollar traded in a tight range Tuesday, while the euro edged lower on talk of additional sanctions on Russia and the Australian dollar received a boost from a hawkish central bank.

At 3:00 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower at 98.955, just below the one-week high of 99.083 reached overnight. 

The dollar has been drifting this week so far as investors await the arrival of the minutes from last month’s Federal Reserve policy meeting, due on Wednesday. 

Expectations are building that the central bank will move more aggressively at its meeting in May, especially after a jobs report that showed nonfarm payrolls increasing by 431,000 jobs last month while the unemployment rate fell to a new two-year low of 3.6%.

Ahead of the Fed minutes, Tuesday sees the release of ISM’s non-manufacturing PMI data for March, at 10:00 AM EST (1400 GMT), which is expected to show increased momentum in March, while speeches from Fed policymakers Neel Kashkari, Lael Brainard and John Williams will also be closely studied.

Elsewhere, AUD/USD rose 0.9% to 0.7607, jumping to a nine-month high, after the Reserve Bank of Australia left its benchmark interest rate unchanged at 0.1% at its latest policy setting meeting, but indicated that rate hikes were coming.

Australia’s central bank dropped its pledge to be "patient" on tightening policy in its statement following the decision, a phrase that has featured in every post-meeting release since November 2021, suggesting that it is going to hike sometime soon.

EUR/USD was largely unchanged at 1.0972, hovering above a one-week low, on talk of fresh sanctions on Moscow following alleged atrocities on civilians by Russian forces in the Ukrainian town of Bucha.

German Chancellor Olaf Scholz said that Putin and his supporters would "feel the consequences" of events in Bucha, while Biden's national security advisor, Jake Sullivan, stated that new U.S. sanctions against Moscow would be announced this week.

“It still seems that the EU is some way from weaning itself off Russian oil,” said analysts at ING, in a note. “Presumably, any moves from the EU toward a Russian oil embargo would see crude prices spike higher again and the euro come under pressure.”

USD/JPY fell 0.2% to 122.58, dropping back further from the multi-year high of 125.10 reached in late March after Bank of Japan Governor Haruhiko Kuroda stated that the recent pace of appreciation was "somewhat rapid," and policymakers are watching moves "carefully."

GBP/USD rose 0.1% to 1.3133, USD/CNY was flat at 6.3638, while USD/TRY rose 0.1% to 14.7092 the day after Turkey’s inflation jumped to a fresh 20-year high in March, with consumer prices rising an annual 61.1% through last month.

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