North American Summary and Highlights 2 Sep
Overview - The USD advanced in Europe, most prominently versus the GBP as fiscal policy worries escalated.
North American session
The USD’s European strength extended early but had peaked before the August US ISM manufacturing index of 48.7, while up from 48.0 in July, came in slightly below expectations. This extended the USD’s correction before stabilization was seen in the afternoon.
USD/JPY at 148.40, EUR/USD at 1.1640 and GBP/USD at 1.3390 were not far from European levels, with EUR/GBP remaining near .87. AUD/USD recovered from a move below .65 and USD/CAD was unable to hold above 1.38.
European morning session
The USD was stronger across the board through the European morning. EUR/USD dropped 70 pips to 1.1630, and USD/JPY gained 55 pips to 148.50. GBP was particularly weak, with GBP/USD falling 130 pips to 1.34 as yields continues to rise, and EUR/GBP rising 40 pips to 0.8690. Yield gains were similar across the US, UK and Europe, but there is more market focus on the UK where 30 year yields have hit their highest since 1998.
The driver for USD strength isn’t clear, as overnight the trend was JPY weakness rather than USD strength. Higher yields have led to lower equities which has favoured the safer havens. Eurozone CPI data was slightly higher than expected, showing a 2.3% y/y rise in the core although the headline was as expected at 2.1%.