FX round-up: Moderate risk appetite returns as tensions simmer down

Some degree of risk appetite returned to the market on Monday following a weekend of no news is good news after three days of sabre rattling from the US and North Korea.

A slight recovery was seen in the relative strength of the US dollar, with the dollar index (a measure of dollar strength/weakness as measured against a basket of currencies) recovering after a three day fall.

Friday had seen the greenback trade at near one-month lows at 93.069. It has since recovered 0.34% on the day to trade at 93.384. This translated into a 0.25% fall in the GBP/USD rate on Monday, where the pair was trading at 1.2977 by 1700 BST.

Looking ahead, UK-related data due to be released during the week included CPI figures on Tuesday, average earnings on Wednesday and retail sales on Thursday, which should provide a catalyst for significant moves going forward.

The short flows seen on GBP/USD were not seen against the euro, where GBP/EUR was fairly unchanged to trade at 1.1019 breaking a recent consolidation area between 1.0992/1.1011, a consolidation zone it entered on late Friday afternoon.

Eurozone data released on Monday saw industrial production come in lower than market expectations for a 0.4% drop month-on-month to print -0.6%.

This negative release pushed the euro lower against the dollar to trade 0.38% down at 1.1777.

However, that looked to be more a case of dollar strength rather than euro weakness.

Safe haven currencies such as the Japanese yen and the Swiss franc also pull-backed as the rhetoric between the US and North Korea died down, with the latter trading 0.98% higher to 0.9716 and the former 0.3% higher to 109.53.

The Japanese Cabinet Office released figures on Monday showing an increase in the quarter-on-quarter rate of GDP growth of 1%, beating analysts' forecasts of 0.3%, with the annualised figure coming in at 4%, beating expectations of 2.5%, and signalling the longest period of expansion in more than 10 years.

Commenting on the release, Hidenobu Tokuda at Mizuho Research Institute said, "The engines of consumer spending and capital expenditure both fired well in the second quarter, and that’s why domestic demand was so strong,” adding “The pace of growth may moderate slightly, but we are still in recovery mode. This is a positive development for inflation."

These figures boded well for prime minister Shinzo Abe who had seen who has seen his popularity waver recently following a scandal involving the sale of state owned land sold to a developer for a fraction of it's valuation for the purpose of building an ultra-nationalist school, following alleged bribes.