EUR / USD
German consumer confidence recovered slightly to -37.8 for January from -40.1 the previous month and was in line with expectations. The Euro edged higher in early Europe, although overall moves were limited with a further round of choppy and relatively directionless trading. There were further net Euro gains at the US open, but the single currency was unable to challenge 1.0650 against the US currency.
US consumer confidence recovered more strongly than expected to an 8-month high of 108.3 for December from a revised 101.4 and well above consensus forecasts of 101.0. There were significant rebounds for the current situation and expectations components. There was also increased confidence in the labour market for the month.
Existing home sales, however, dipped further to an annualised rate of 4.09mn for November from 4.43mn the previous month. This was below market expectations of 4.20mn and the weakest reading since June 2020. Excluding the June 2020 figure, this was the weakest reading for 12 years.
There was little net change after the US data with some Euro support close to the 1.0600 level, although there were further reservations over the US outlook.
Trading volumes will continue to decline into the holiday period, maintaining the potential for choppy trading conditions.
The dollar lost ground on Thursday with expectations that the US currency would retreat into the year-end period and the Euro advanced back to near 1.0650.
The dollar found support above 131.50 in early Europe on Wednesday and advanced to highs close to 132.50 just after the US open. Treasuries, however, posted net gains with the 10-year yield dipping lower which sapped the potential for further dollar support.
There were also further concerns surrounding the housing sector following the weaker than expected housing data which sapped dollar confidence.
Markets also remained very wary over the threat of fresh yen buying and a liquidation of short positions following the collapse seen on Tuesday.
The dollar did find support below 132.00 against the yen, but was unable to break above 132.50 amid an underlying theme of consolidation.
The latest US jobless claims data will be released on Thursday, although Friday’s PCE prices data is likely to be more important for market sentiment.
Markets will be on alert for any comments from Fed speakers and there will be some speculation that the 2023 voters of the FOMC committee will be more dovish.
The Bank of Japan again engaged in an unscheduled market operation to buy bonds on Thursday in an attempt to cap yields.
Overall volatility eased slightly on Thursday with the dollar back below the 132.00 level as the US currency posted wider losses with the Euro around 140.40.
Overall sterling lost ground following Wednesday’s European open with the latest government borrowing data causing fresh reservations over the outlook, especially with debt interest payments rising further. Sterling dipped to test weekly lows around 1.2085 against the dollar ahead of the US open.
The UK CBI retail sales index recovered to 11 for December from -19 the previous month and was substantially above consensus forecasts of -24. Retailers, however, expect sales to decline again for January as underlying confidence remained weak.
Sterling briefly recovered strongly to highs at 1.2160, but selling pressure resumed later in the session with position adjustment ahead of the holiday period again having an important impact. It traded below 1.2100 at the European close and hit 3-week lows near 1.2050 with the Euro hitting a fresh 1-month high around 0.8780.
Significantly, the UK currency was again unable to gain support from stronger risk appetite with vulnerability despite sharp gains in equities, although it did manage to recover back towards 1.2100 against the dollar. Gains in equities should still provide a significant element of protection.
Sterling recovered against the weaker dollar on Thursday, but traded only just above the 1.2100 level while struggling against the Euro. The UK current account deficit narrowed to £19.4bn for the third quarter of 2022 from a revised £35.1bn previously, although confidence in the UK outlook remained notably weak.
The Swiss franc was held in tight ranges on Wednesday with the currency again resilient in global markets despite net gains in equities. The Euro settled around 0.9835 with the dollar unable to gain significant traction. There was further speculation that National Bank would am for franc gains over the medium term in order to exert downward pressure on inflation. Comments from the central bank will remain under scrutiny with the dollar retreating to 0.9240 on Thursday.