Markets, with the exception of Sterling, were confined to narrower ranges on Tuesday as the dollar maintained a generally firmer tone, but unable to extend gains as Summer trading conditions continued to sap energy.
The headline UK labour-market data was stronger than expected as the claimant count fell sharply by 29,200 for July from a revised 29,400 decline the previous month and these were the biggest monthly declines since 2010. The unemployment rate held steady at 7.8% for June while there was a stronger reading for average earnings.
There were 9-0 votes in the Bank of England MPC minutes for the decision to leave interest rates and quantitative easing on hold at the August meeting. The MPC also voted on the Bank of England’s new forward guidance introduced alongside the latest inflation report. There was, however, an 8-1 vote for this guidance with Weale voting against as he wanted a more robust inflation clause to provide a potential over-ride to low interest rates.
The combination of minutes and labour-market reports maintained market suspicions that UK interest rates would have to increase before 2016 which provided underlying Sterling support. EUR/GBP dipped to test lows below 0.8550 following the brief move to this area on Tuesday while GBP/USD pushed back above the 1.55 level.
There were stronger than expected second-quarter GDP releases from Germany and France which help produce a 0.3% gain for the Euro-zone as a whole, the first increase for seven quarters. The data helped maintain a more confidence mood surrounding the Euro-zone outlook despite important reservations surrounding the peripheral economies. EUR/USD attempted to move higher following the data, but there was solid selling interest which triggered a further test of stiff technical support in the 1.3230 area.
There were no major US releases ahead of the jobless claims and consumer prices data due on Thursday. US Treasury bond yields maintained most of the gains seen the previous day which helped underpin the dollar. Markets remained on high alert for fresh comments from Federal Reserve officials with Bullard due to speak later in the day.
USD/JPY pushed to a peak around 98.40 before drifting lower as selling pressure from exporters took hold. Greater optimism surrounding the global growth outlook and some hopes for an improvement in Chinese economic conditions helped underpin the Australian dollar with AUD/USD rising to the 0.9145 area.