For the first time in their 300-year history, UK yields traded in negative territory this week as the bond rally driven by BoE purchases and safe haven flows welcomed the UK into an environment that has been dominated by Japan, Switzerland and parts of Europe. The only variance between this collective group is Mark Carney, who has firmly stated that nominal negative interest rates will not formulate part of the bank’s policy. Sterling remains weak, however it did witness a slight relief rally on Wednesday afternoon on a weakening US dollar which sadly proved short-lived. Any trading above 1.3000 looks unsustainable as investors will look to short sell any potentially rallies.

GBPEUR looks exposed, trading at Q3 2013 levels thanks mostly to a resilient EURUSD.

July RICS house price balance data slipped to five per cent telling US surveyors still reported house price increases in their specific areas. A glimmer of decent news alongside reports that new home buyers are actively out there trying to find bargains.

US dollar

Despite chances of an interest rate hike still being priced into September or more so December, the US dollar index is still soft and is looking generally vulnerable against the Japanese yen and even possibly the euro, which indicates we may see a breakout in due course. Global tides are shifting and this is not being reflected in G3 currency valuation. Domestic US data has outperformed, so perhaps it is the looming election in November and summer liquidity that is halting large directional plays. Keep a close eye on data points and trading ranges as August and early September could still prove to be pivotal times.

Euro

There was caution ahead of a risk event-laden Friday from both sides of the Atlantic which caused the euro to surrender the previous day’s gain against the greenback. Deceleration is on the cards for eurozone second quarter growth while US retail sales are forecast to accelerate. Fresh evidence of fundamental divergence in favour of the US would tend to boost the dollar at the euro’s expense.

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