OVERVIEW : Thursday, July 16th, 26’ Markets remained driven by the US-Iran conflict, with the US carrying out another round of strikes on Iranian military targets, while Tehran responded with attacks on US bases in Kuwait and Jordan. The bigger concern remains energy supply. Iran's top military commander warned the Strait of Hormuz is a red line and threatened to "crush" regional infrastructure if the US continues its campaign. Reports also suggested Iran instructed the Houthis to prepare to shut the Bab el-Mandeb Strait if the US targets Iran's power infrastructure, raising fears that disruption could spread beyond Hormuz. With the Strait still effectively shut and shipping flows slowed, analysts continue to warn that any damage to Gulf energy facilities could impact production for months or even years. The Dollar managed to recover some of yesterday's losses, although the move was modest after softer US inflation data earlier in the week pushed markets to price just one 25bp Fed hike by year-end. Overall, geopolitics remained firmly in control of price action.
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US DOLLAR
USD recovered some of yesterday's losses as geopolitical tensions continued to dominate markets. Fresh US strikes on Iran, Iran's threats towards the Strait of Hormuz and reports that the Houthis could shut the Bab el-Mandeb Strait if the conflict escalates helped support the Dollar through safe-haven demand. The gains were also helped by stronger-than-expected US data, with jobless claims falling to 208k, retail sales meeting expectations at 0.2% M/M, and the Philly Fed Manufacturing Index jumping to 41.4, well above forecasts. Fed speakers also kept a hawkish tone, with Logan saying a modestly higher policy rate would better balance the outlook and that one soft CPI report is not enough, while Schmid warned inflation remains persistent across a broad range of goods and services. Despite the rebound, markets continue to price just one 25bp Fed hike by year-end following this week's softer inflation data.
Data:
- US Initial Jobless Claims (Jul/11) 208k vs. Exp. 217k (Prev. 215k).
US Continuing Jobless Claims (Jul/04) 1805k vs. Exp. 1820k (Prev. 1814k).
US Retail Sales MoM (Jun) M/M 0.2% vs. Exp. 0.2% (Prev. 0.9%, Low. -0.4%, High. 1.0%).
US Retail Sales YoY (Jun) Y/Y 6.7% (Prev. 6.9%).
US Philadelphia Fed Manufacturing Index (Jul) 41.4 vs. Exp. 12 (Prev. 10.3).
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EURO
EUR traded choppy and ended little changed. The Euro failed to hold onto early gains as the Dollar found some support later in the day following stronger US data and ongoing geopolitical headlines. On the data front, Eurozone industrial production missed expectations while the trade balance also disappointed.
Data:
- EU Balance of Trade (May) -7.8B (Prev. -1B).
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GREAT BRITISH POUND
GBP gave back some of yesterday's gains and closed lower on the day. UK GDP didn't change much for markets, with the monthly reading coming in as expected at 0.1%, while the three-month growth measure slowed to 0.7% but still beat expectations. The rest of the data was mixed, with manufacturing holding up better than expected, although industrial production disappointed. Politics remain in focus, with reports that Andy Burnham is likely to appoint Mahmood as Chancellor. Markets continue to see that as a positive given her fiscally conservative reputation, although investors are still waiting for more clarity on her broader policy stance.
Data:
- UK GDP YoY (May) Y/Y 1.3% vs. Exp. 1.4% (Prev. 1.2%).
- UK GDP 3-Month Avg (May) 0.7% vs. Exp. 0.5% (Prev. 0.7%, Low. 0.4%, High. 0.6%).
- UK GDP MoM (May) M/M 0.1% vs. Exp. 0.1% (Prev. -0.1%, Low. -0.3%, High. 0.1%).
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AUSTRALIAN DOLLAR
AUD caught a bid through the London session, helped by the improved risk tone early in the day, but gave back some ground later as geopolitical tensions picked up again. On the domestic side, inflation expectations continued to move lower, with Australian consumers seeing 4.7% inflation over the next 12 months, down from 5.5% in June
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CANADIAN DOLLAR
CAD remained supported by elevated oil prices, with the ongoing Middle East tensions continuing to keep crude well bid. Despite some choppy price action, the Loonie held up relatively well as stronger energy prices continued to provide support, with little in the way of domestic catalysts driving the move.
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NEW ZEALAND DOLLAR
NZD continued to outperform, with the Kiwi staying supported by the still-hawkish RBNZ outlook and the broader positive risk sentiment. Markets continued to price in further RBNZ tightening, helping NZD remain one of the strongest G10 currencies. Some of the gains faded later in the day as geopolitical tensions picked up again, but overall the Kiwi remained well supported.
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JAPANESE YEN
JPY had a choppy session and ended relatively flat on the day. The Yen lacked a clear direction as markets balanced ongoing geopolitical uncertainty with broader risk sentiment. Japanese Finance Minister Katayama reiterated that authorities are ready to take appropriate action on FX if needed, while avoiding comments on specific levels. The remarks kept intervention risks in focus but did not create a major move in the currency.
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SWISS FRANC
CHF underperformed throughout the day, with the Dollar taking most of the safe-haven demand amid the ongoing geopolitical uncertainty. The Franc struggled to attract stronger flows despite its defensive profile, with markets favouring USD positioning instead. SNB minutes showed that while inflation risks have increased and companies' short-term inflation expectations have risen, policymakers saw no immediate need for action, keeping the policy outlook unchanged