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Risk Sentiment Improves Slightly But Trade Concerns Still Simmer.

By Alex Edwards

It was a mostly quiet day in FX markets yesterday as traders in London and Europe seemingly took more interest in the World Cup and took as much of a chance as they could to get out in the sunshine. GBP/USD has traded a range between 1.32 and 1.3250, falling to the lower end of the range yesterday lunchtime as Jonathan Haskel, who’s set to replace Ian McCafferty – a relative hawk on the committee – stated in written testimony to UK lawmakers that “the first risk involved in raising interest rates would be if this is done too quickly, disturbing investment and borrowing plans by more than would have been expected.” Although it seems Haskel is dovish in his thinking towards monetary policy, it obviously won’t influence expectations for a potential August rate rise; markets are currently pricing in a 71% chance of a hike.

BoE Governor Carney is due to speak today and will be speaking about the Financial Stability Report, released at the same time he’s due to talk. US Durable Goods Orders data is also due for release this afternoon and so we could see some volatility in GBP/USD over the day.

The dollar gained through the morning session yesterday as the trade war rhetoric subsided with US trade advisor Peter Navarro’s comments from the Monday continuing to sooth any nerves. Stocks recovered too, but that all said, investors and traders remain on high alert.

In other news yesterday US CB Consumer Confidence printed weaker than expected, but only just, at 126.4 vs. 127.6. There wasn’t much by way of a reaction in currency markets. Durable Goods is due for release today, which may get more of a reaction.

EUR/USD fell back below 1.17 early on yesterday morning, largely a result of broad strength in the dollar. There wasn’t any data out of Europe yesterday and the calendar doesn’t look too dissimilar today with only money supply data due.

It could be another steady session for the single currency, unless the tit for tat trade rhetoric starts to rear its ugly head again, which it undoubtedly will. Investors will also likely trade with an air of caution ahead of European inflation data due out tomorrow. More importantly though, the EU summit is due to start on Thursday and we’re likely to get some market moving news on subjects covering the EUs fiscal budget, Brexit, Italian fiscal risks and migration.

AUD/USD has moved steadily south over the last 24 hours, and like EUR/USD, it’s largely been to do with the strength seen in the US dollar. It’s perhaps also been dragged lower by sales in NZD/USD overnight, which was in part a reaction to the release of a weak set of NZ business confidence data.

As for the next 24 hours the aussie dollar will continue to take direction from offshore events due to a lack of local data due for release. The focus will no doubt turn to the RBNZ Rate Statement later tonight, the outcome of which may also impact on AUD/USD.

USD/CAD has traded a tight range over the last day between 1.3290 and 1.3330. The CAD didn’t get any help from oil prices, which were not able to continue the bullish path started on Friday, as OPEC members made clearer that the 1MM barrel production increase was coming in full.

BoC Governor Poloz is due to speak today, and will do doubt get some attention from USD/CAD traders. Data on crude oil inventories is also due for release around the same time and may create some volatility in the pair.

NZD fell overnight, a reaction to both a strengthening dollar and the release of an ANZ business survey which showed that NZ business confidence had fallen, this despite the release of slightly stronger than expected trade data. It will no doubt give the RBNZ something to think about ahead of their monetary policy announcement due later this evening. The central bank is expected to leave interest rates on hold at 1.75%.