Forex Market Review (European Session) – Dollar remains under pressure; euro and gold extend gains

Raffi Boyadjian, XM Investment Research Desk

The US dollar remained under pressure in European trading today, extending its Asian session losses, while the euro and gold added to their earlier gains. The risk aversion brought on from North Korea’s latest missile tests, which violated Japanese airspace, showed little sign of dissipating, with major European indices falling deep into the red. Dollar weakness lifted other majors however, with sterling, and the Canadian, Australian and New Zealand dollars all rising on the back of the greenback’s slide.

The absence of major data didn’t help sentiment either with only the US consumer confidence indicator able to distract investors’ attention away from geopolitical concerns. US President Donald Trump fuelled market anxiety by saying that “all options are on the table”. The dollar got only a modest boost from better-than-expected consumer confidence data. The Conference Board’s gauge of consumer confidence improved to 122.9 in August, beating forecasts of 120.3, although July’s figure was revised down from 121.1 to 120.0. Reaction to the S&P CoreLogic Case-Shiller 20-City house price index was also muted. The index rose by 5.7% year-on-year in June, in line with expectations.

The dollar recovered from its four-month low of 108.25 yen to climb towards 108.80 yen after the data. The dollar index also came off its lows to rise to 91.92, having touched a 2½-year low earlier in the day. Against the Swiss franc, the dollar recovered marginally to 0.9463, though this was still 0.9% down on the day.

The euro continued to charge higher, achieving yet another 2½-year high as it hit $1.2069. The single currency also made new highs against the pound, climbing to a near 10-month high of 0.9306 pounds, and even managed to resist the yen’s strong advance to stand flat on the day at 130.88 yen. The next big focus for the euro is Thursday’s flash Eurozone inflation data.

Sterling was mixed on Tuesday as it fell against the euro and the yen but was firmer against the dollar. The pound rose to a two-week high of $1.2978 despite growing doubts about the UK’s progress in the Brexit negotiations with the EU. As the third round of Brexit talks got underway between Britain and the EU, European Commission President Jean-Claude Juncker said the UK government’s Brexit position papers were not satisfactory, insisting that the divorce bill must be settled first before trade discussions can begin. Meanwhile, there was irritation on the British side following the EU chief negotiator Michel Barnier’s comments aimed at the UK to start “negotiating seriously”.

The risk-sensitive Australian and New Zealand dollars both edged higher versus their US counterparts, even as investors fretted about the latest fallout over North Korea’s actions. The aussie was up 0.1% at $0.7972 as traders awaited Australian building approvals and capital expenditure figures due on Wednesday and Thursday respectively. The kiwi was up a more solid 0.5% at $0.7290 in afternoon European trading hours.

The Canadian dollar was also firmer, though it gave up some of its earlier gains following the release of producer price data out of Canada. Producer prices fell from a downwardly revised 3.1% to 1.3% y/y rate in July.  Dollar/loonie bounced off a one-month low of 1.2438 to rebound to around 1.2490 after the release.

In commodities, gold extended its gains, reaching a fresh 9½-month of $1325.94 an ounce before easing to around $1320. Oil prices remained weighed by concerns over the impact on demand of the refinery closures in the US as a result of the tropical storm Harvey hitting the state of Texas. WTI and Brent crude were both mostly flat in late European trading at $46.60 and $51.88 a barrel respectively.