EUR / USD
Narrow ranges prevailed in currency markets ahead of the New York open with markets waiting for fresh developments and incentives.
US initial jobless claims declined slightly to 840,000 from a revised 849,000 the previous week, but slightly above consensus forecasts of 820,000. Continuing claims declined sharply to 10.98mn for the week from 11.98mn the previous week and there was a net decline in those receiving pandemic unemployment assistance. The drop in continuing claims provided an element of reassurance over trends, but initial claims remained at very high levels.
The dollar was hampered by generally firm risk conditions which limited potential defensive demand. The Euro, however, was hampered by underlying reservations over the coronavirus outlook as cases continued to increase across many Euro-zone countries and further social restrictions were put in place.
Boston Fed President Rosengren commented that more quantitative easing is still worth weighing despite limited gains, maintaining market expectations that the central bank could sanction further stimulus. Kansas City Fed President George stated that the new inflation framework is for a tolerance of inflation above 2%. She also warned that the outlook had substantial risks. Underlying real yields remained very low which continued to undermine dollar support.
Overall, the Euro settled just above the 1.1750 level. The dollar drifted lower on Friday amid a lack of defensive demand and gains for commodity currencies with the Euro trading around 1.1775. Position adjustment could be a significant element ahead of the weekend.
The US electoral Commission stated that the next presidential debate would be held virtually, but President Trump condemned the move and stated that he would not participate. There was a further stream of rhetoric from Trump with remarks that he would use tariffs on China in the second term. The remarks potentially undermined risk appetite, although he added that he was optimistic that there was a good chance of a fiscal stimulus deal being approved. House Speaker Pelosi stated that there would be no standalone airline bill without a bigger aid plan. US equities made further headway, but the dollar was held in very tight ranges around the 106.00 level.
Expectations of further fiscal stimulus helped underpin risk assets with market optimism that there would be stimulus after the November elections even if there is no move over the next few weeks. In this context, market confidence held firm, although uncertainty remained extremely high.
Chinese markets re-opened after the week-long holiday with the Caixin PMI services index strengthening to 54.8 from 54.0 previously which helped underpin risk conditions. Risk appetite held firm, although the dollar overall lost support and settled around 105.85 against the yen.
Bank of England Governor Bailey stated that the economic recovery had been very uneven across the country and that risks are very much to the downside. He commented that he strongly hoped that there would be a Brexit deal, but the post-transition period would not be easy. He also commented that we must use policy aggressively and actively with the bank by no means out of firepower. Markets continued to expect further stimulus before the end of 2020.
Rhetoric surrounding Brexit trade talks continued with further reported comments from EU Chief Negotiator Barnier that a deal was unlikely by the October 15-16th Summit while EU Council President Michel called for greater UK clarity. There were also reports that Barnier had been instructed to keep a hard-line position on fishing.
Sterling eroded gains ahead of the New York open, but found support just below the 1.2900 level while the Euro settled around 0.9080.
Sterling was hampered by on-going concerns over increased coronavirus cases, although there were also reports that Chancellor Sunak could introduce a local furlough scheme. GDP increased 2.1% for August compared with expectations of 4.6% and industrial data was also weaker than expected with a 6.4% annual decline. The data maintained reservations over the underlying recovery outlook and the UK currency was held just below 1.2950 against the dollar.
National Bank Chair Jordan stated that an unprecedented expansion in the monetary base does not pose a particular threat to franc stability and the money supply can be reduced at any time if franc demand weakens. There were assumptions that intervention would continue.
The Euro was again unable to break above the 1.0800 level and settled just below this level while the dollar secured a marginal advance to the 0.9175 area. The Swiss currency was able to resist selling pressure on Friday despite gains in global equities with the dollar retreating to near 0.9150.