Forex today: dollar holds the 95 handle, Fed expectations solid, Sterling was strongest

• Forex today was focused on what is to come, rather than what was - it was quiet, with the dollar's strength masked by Brexit headline fuelled sterling strength - but there is plenty to come this week. 
• A lack of events, headlines and data kept things on an even keel on Monday's US shift.

The NY Fed’s Consumer Expectations survey indicated stable consumer inflation expectations in August. Year-ahead median inflation expectations remained steady at 3.0%, up marginally from 2.98%, previously. However, looking ahead, we have US inflation data at the end of the week. 

At the same time, trade tensions are simmering away on the backburner - leaving the outlook for gold somewhat vulnerable on the prospect for a  stronger greenback. Markets will also be looking for updates with respect to the U.S. imposing tariffs on an additional $200 billion of imports from China. When markets start to price in the additional $267 billion that President Trump threatened on Friday, just hours before China reported another record trade surplus with the U.S, one might expect additional gains in the greenback. Other key U.S. data in the week ahead include the JOLTS jobs, real weekly earnings, retail sales and industrial production.

Elsewhere, markets were marginally higher but you can cut the atmosphere with a knife with respect to tensions simmering away on the back-burners. There was a mix of inflation concerns marked by the nonfarm payrolls wages data, (treasury yields test the technical boundary of 2018 range (Fed funds have priced in an extra 7bp of tightening since NFP data)), while at the same time, trade war angst, Chinese economic risks, (US/China divergence is compelling), European politics, emerging market contagion and midterm elections all make for an interesting cocktail of risk factors anchoring equities:

• Dow closed down -57.50 points at 25858.91.
• S&P ended higher by 5.5 points or 0.19% at 2877.17.
• Nasdaq put up 21.619 points or 0.27% at 7924.16.

US Treasury yields hovered around their Friday's closing levels:

• 2 year 2.710%, + 0.8 bps.
• 5 year 2.8228%, + 0.2 bps.
• 10 year 2.9314%,  -0.7 bps.
• 30 year 3.0818%,  -1.9 bps.

Currency action

As for the euro,  we saw a risk-off low down at 1.1520/30 in the European shift and then a sharp recovery back onto the 1.16 handle with early bird NY traders adding to gains seen at 1.1615. Italy's economic minister Giovanni Tria commented over the weekend that Italian bond yields will fall once the government starts to implement its policies to boost the economy via "prudent" fiscal measures. Then, EU's Barnier noted that it was "realistic" to expect a deal in 6-8 weeks - both of which were a booster for the euro and the pound.  EUR/USD rallied through the 55-D SMA although continued trade tensions hurt EM-FX and capped the euro's advance. The pair was back below the 55-D SMA and traders are setting themselves up for the ECB this week.  Sterling was a dominant theme on the boards today, what with the positive Bexit headlines taking centre stage again. The pound rallied to the highest levels since early July and built on the positive GDP surprise from the European session, a marginal beat - (July GDP +0.3 pct vs +0.2 pct f/c. +0.6 pct in 3mths to July vs +0.5 pct f/c). GBP/USD ended NY at 1.3026 and on continued positiveness in Brexit noise, the pair eyes 1.33 on the not-so-wide outlook once the double top 1.13 levels are broken. The cross was flushed on the sterling short squeeze, and all eyes turn to the UK earnings/jobs data due Tuesday ahead of the BoE on Thursday. EUR/GBP ended NY at 0.89 the figure and traded between 0.8894. USD/JPY was seeing decent dip demand from 110.84 in Asia, 110.98 in European markets and then 111.05 in NY where the price made a high of 111.24. There was little more from the dollar after the NFP data but the GBP/JPY & EUR/JPY were supportive on the back of positive European headlines in the Barnier comments and Italy's economic minister Giovanni Tria noise. Trade war and EM risks still hover over markets and keep a lid on USD/JPY - bulls fearful of sudden Japanese repatriation flows on EM outflows. AUD/USD European session gains were faded at 0.7131 and the pair made a low of 0.7106 and closed at 0.711 - (hard to see a recovery when AU-US yield spreads are at near multi-decade wides); The high-beta FX sector continues to struggle as a proxy to EM-FX collapsing - (RUB and INR were the outsiders on Monday).

Key notes from US session:

• Wall Street ends mixed despite optimism surrounding new tax cuts

Key events ahead:

AUD NAB business confidence and conditions for August may pause or dip (prior +7 and +12 respectively) as the political rout unfolded like a freight train in the month (ending in a fresh PM in Scott Morrison on 24 Aug) - analysts at TD Securities noted.