EUR / USD
The Euro posted gains after Wednesday’s European open and moved above 1.0750 against the dollar, although it was still unable to generate significant traction. Gains in equites helped underpin the Euro, but there was still a significant element of caution given reservations surrounding the Federal Reserve policy stance.
ECB council member Knot stated that headline inflation seems to have peaked, but his main focus was on underlying inflation. According to Knot, if underlying inflation does not materially abate, the current pace of rate hikes may be needed into May. He added that the ECB will move to smaller steps once the bank sees a clear and decisive turn in underlying inflation dynamics. Overall rhetoric has maintained a hawkish policy stance.
Equites were more defensive after the New York open which sapped potential Euro support and it drifted lower, although overall ranges were relatively narrow.
The Euro found support above the 1.0700 level against the dollar and edged higher to 1.0740 just after the European close.
There was little net change on Thursday with a tentative rebound in equities limiting scope for dollar buying and the Euro traded around 1.0730.
Overall risk conditions will remain important for currencies ahead of the latest US inflation data scheduled for next week.
The dollar was unable to make any headway ahead of the New York open and posted lows near 130.60 against the Japanese currency.
New York Fed President Williams stated that the central bank still has some work to do to get inflation under control, although there is a lot of uncertainty over the inflation outlook. He also stated that the December dot plots were still very reasonable due to the totality of the data. He also warned that there will need to be higher interest rates if services prices remain elevated. Williams was broadly optimistic over the economic outlook with demand still very strong.
Fed Governor Cook stated that inflation is still running high even if it has moderated and that a restrictive policy will be needed for some time.
Treasuries overall were held in narrow ranges during Wednesday with an underlying theme of consolidation. The latest Fed rhetoric has not been hawkish enough to trigger a decisive shift in expectations, but there is an important element of caution, especially ahead of next week’s inflation data.
The dollar gradually recovered ground and moved towards 131.50 before edging back to 131.20 at the European close.
Markets will remain on alert for a government announcement on nominees for the next Bank of Japan Governor. There are strong expectations that an announcement will be made within the next few days and a dovish nomination would undermine the yen while a more hawkish nomination would boost the Japanese currency.
Relatively narrow ranges prevailed on Thursday with yen losing ground at the European open amid a limited net advance for equities. The dollar edged above 131.50 before fading in choppy trading while the Euro traded just below the 141.00 level.
Sterling held firm after Wednesday’s European open with a challenge on resistance levels above 1.2100 against the dollar. Equities held firm and the UK FTSE 100 index posted a fresh record high which helped underpin Pound sentiment.
Sterling was unable to hold above the 1.2100 level and gradually lost ground as the mood in global equities turned more cautious later in the day. Overall, there was a retreat towards 1.2050 against the dollar before a recovery to near 1.2100 while the Euro posted net losses to the 0.8880 area.
The RICS housing data reported that 47% of surveyors reported a decline in house prices in January from 42% previously and the lowest reading since 2009, although there were some expectations that the sector would be resilient. Overall risk conditions were relatively stable with Sterling trading just below 1.2100 against the dollar while the Euro traded around 0.8880. Bank of England Governor Bailey and other MPC members will testify to the Treasury Select Committee on Thursday with any hints surrounding peak interest rates watched closely. The UK will also release its latest GDP data on Friday.
The Swiss franc held a firm tone on Wednesday with an underlying reluctance to sell the currency amid uncertainty over the global outlook. Hawkish ECB rhetoric, however, limited the scope for Euro selling with equity-market developments watched closely. The Euro edged lower to the 0.9870 area while the dollar dipped to 0.9180 before moving back above the 0.9200 level. There was little net change on Thursday with the dollar just below the 0.9200 level.