EUR / USD
German unemployment declined 8,000 for September following a 9,000 decline the previous month and in line with consensus forecasts.
ECB President Lagarde stated that strategies on inflation should be examined, reinforcing expectations that the central bank would look to adjust its target over the medium term. ECB council member Villeroy also discussed a potential move to a symmetrical inflation target which could weaken the Euro, although the overall market impact was limited. The Euro moved lower into the New York open with a test of support just below the 1.1700 level as the dollar attempted to regain some ground. There were also expectations that there would be US currency buying into the month-end London fix amid choppy trading.
ADP data recorded an increase in private-sector payrolls of 749,000 for September after a revised 481,000 increase for the previous month and above market expectations of 650,000. The data should not have a major impact on expectations surrounding Friday’s employment report with solid growth expected.
The Chicago PMI index strengthened sharply to 62.4 for September from 51.2 previously, well above market expectations of 52.0 and the strongest reading since December 2018 with significant gains for all the components. There was also a further strong reading for pending home sales.
The Euro was able to post significant gains after the US open with highs above 1.1750 amid evidence of month-end position adjustment, but it drifted weaker into the European close. The dollar was failed to gain sustained support as commodity currencies made further gains with the Euro near 1.1750 at Friday’s European open.
The dollar made net gains into the US open amid wider gains, but stalled around the 105.80 area as the yen was able to resist further selling pressure despite solid gains in Wall Street indices. San Francisco Fed President Daly stated that the US economy is not out of the woods and that further fiscal support is needed.
There was fresh speculation over a fresh fiscal stimulus package which helped underpin risk sentiment, although there was still an important element of caution. In this context, equities dipped sharply later in the session following reports that there was still no agreement on a fiscal package. There was an additional element of uncertainty as major airlines announced that substantial redundancies would take place unless wage subsidies are approved. Moderna stated that its vaccine would not be ready before the US election with the company not seeking FDA approval for any user groups until late November at the earliest.
Japan’s quarterly Tankan index recovered to -27 from -34 previously while the non-manufacturing index improved to -12, although both figures were below expectations and there was deterioration across small companies. The dollar was unable to make headway and traded just below 105.50 with Chinese markets closed for a holiday.
According to Bank of England Chief Economist Haldane the UK economy faces uncertainties that are extraordinarily large and risks are skewed to the downside. He also stated that the prevailing economic narrative is unduly negative with positive news receiving less attention than it deserves. As far as negative interest rates are concerned, he stated they could only be implemented if operational issues could be resolved, the further stimulus was needed and the benefits of negative rates out-weighed the costs. According to Haldane, none of these conditions had been met yet and Sterling edged higher following the comments.
The UK currency secured further gains later in the day following the announcement that the UK had secured a fishing deal with Norway. The deal increased speculation that there would be a trade agreement with the EU with some anticipation of progress in crucial talks due to finish in Brussels on Thursday.
There was volatile trading associated with month-end positioning and the UK currency pushed to highs near 1.2950 late in the European session and the Euro also declined to lows around 0.9070. There was a correction weaker, especially another stark warning over the coronavirus situation from Prime Minister Johnson. Sterling was, however, able to hold steady on Thursday to trade around 1.2740 with the Euro around 0.9080 as markets continued to monitor trade developments closely.
The Swiss KOF business confidence index strengthened to 113.8 for September from 110.2 which was above consensus forecasts and the strongest reading for over 10 years. The ZEW economic sentiment index, however, declined to 26.2 from 45.6 previously.
The Euro secured a marginal advance against the franc, but again hit selling interest above 1.0800 and settled just below this level while the dollar dipped to lows near 0.9160 before regaining ground. The Swiss currency was little changed on Thursday as markets monitored European coronavirus and trade developments.