EUR / USD
German retail sales slumped 5.3% for December compared with expectations of a small increase which sapped confidence in the outlook and the Euro dipped lower after the European open. The latest labour-market data recorded a further 15,000 decline in German employment for January after a 13,000 decline previously and compared with expectations of a small monthly increase which countered concerns.
The Euro-Zone recorded a 0.1% GDP increase for the fourth quarter of 2022 compared with expectations of a 0.1% decline. There was, however, a slowdown in annual growth to 1.9% from 2.3%. Although the GDP data was better than expected, the Euro was unable to gain further support and dipped to lows just above 1.0800 against the dollar ahead of the US open. The latest Euro-Zone inflation data will be released on Wednesday.
US consumer confidence declined to 107.1 for January from an upwardly-revised 109.0 the previous month and below expectations of 109.0. Although there was a net improvement in the current conditions index, this was offset by a dip in expectations with consumers also less confident over the labour-market outlook.
The dollar dipped significantly after the US open with the Euro recovering to above 1.0850 with some protection from expectations of a hawkish ECB stance.
The Federal Reserve will release the latest policy statement on Wednesday with strong expectations that the central bank will slow the pace of rate hikes to 25 basis points which will take the Fed Funds rate to 4.75%. Forward guidance from the bank and rhetoric from Chair Powell will be a crucial element for all asset prices including currencies. There are also important US data releases during the day. Narrow ranges prevailed in early Europe on Wednesday with the Euro around 1.0870.
US Treasuries lost ground after Tuesday’s European open with higher yields underpinning the dollar and the US currency posted highs just above 130.50. The employment cost index increased 1.0% for the fourth quarter, marginally below consensus forecasts of a 1.1% increase and below 1.2% previously. Although the data was close to expectations there were hopes over an easing of wage pressures, lessening the risk of an inflation spiral.
The Chicago PMI index edged lower to 44.3 for January from 45.1 previously and slightly below market expectations.
Treasuries rallied after the data with the 10-year yield just below 3.50% which undermined the dollar and it dipped just below the 130.00 level.
Equites rallied which curbed potential yen support and the dollar rallied back above 130.00 as the yen reversed intra-day gains on the crosses.
China’s Caixin PMI manufacturing index edged higher to 49.2 from 49.0 previously, but was below market expectations which dampened confidence in the outlook.
Bank of Japan bond buying hit a record high for January, maintaining expectations that the central bank would eventually have to change policy.
The dollar again found support below the 130.00 level against the yen and settled around 130.25 in early Europe on Wednesday.
The latest UK data recorded a further sharp decline in mortgage approvals to 35,600 for December from 46,200 the previous month and well below consensus forecasts of 45,000. Excluding the immediate pandemic period in 2020, this was the lowest level since the beginning of 2009. There was a much smaller increase in consumer credit which could indicate weak spending or that distressed borrowing was lower than feared ahead of Christmas. According to the latest YouGov survey the 1-year inflation expectations index declined to 5.4% from 5.7%. The long-term expectations also edged lower to 3.5% from 3.6%.
Sterling lost ground into the New York open with a retreat to just below 1.2300 against the dollar while the Euro edged above the 0.8800 level.
There was protection from a rally in equities and Sterling edged back above 1.2300 later in the session, although UK and global sentiment remained fragile.
Media reports that agreement had been reached with the EU on the Northern Ireland protocol had little impact with Sterling around 1.2315 in early Europe while the Euro edged higher to around 0.8825 amid uncertainty surrounding the Bank of England policy decision and expectations of a hawkish ECB stance.
The Swiss franc regained ground on Tuesday with month-end position adjustment a significant element. The currency also gained initial support from weaker equities, but held gains when Wall Street rallied. The Euro dipped below parity to 0.9970 with the dollar sliding to lows around 0.9165.
Central bank decisions this week will inevitably have an important impact on the franc with the dollar held around 0.9160 on Wednesday.