What you need to know on Friday, July 9:
Risk aversion dominated financial markets. Signs of slowing global growth and resurgent coronavirus cases are behind the sour mood. The rapid spread of the Delta variant is arising concerns in Europe, where governments are imposing some restrictions to try to curb contagions.
The EUR/USD pair advanced to 1.1867 but retreated afterwards to settle in the 1.1840 price zone. Meanwhile, the European Central Bank has shifted to a symmetric inflation target of 2% contrary to a ceiling at that level, allowing higher inflation to compensate for previous undershooting. President Christine Lagarde said that they “expect inflation in the medium term to stabilize below our objective.” “Our inflation projections for this year are around the 2% mark – which is something we haven’t seen in more than eight years.”“The increase in prices should nevertheless slow to 1.5% in 2022 and 1.4% in 2023. “
The Swiss Franc and the Japanese yen were the best performers against the greenback, holding on to intraday gains ahead of the close. Commodity-linked currencies, on the other hand, were the ones that suffered the most, with USD/CAD regaining the 1.2500 threshold and the AUD/USD pair falling to a fresh 2021 low of 0.7416.
Gold advanced with the dismal mood and hit an intraday high of $1,818.37, but trimmed gains during the US session, to finish the day with modest losses at around 1,800. Crude oil prices recovered modestly after the previous slump, with WTI ending the day at $ 73 a barrel.
European indexes closed in the red, while US indexes posted substantial losses, despite bouncing off intraday lows. The DJIA lost over 300 points.
US Treasury yields fell to fresh multi-month lows. The yield on the 10-year note plummeted to 1.25% to finally settle at 1.29%.
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Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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