EUR / USD
ECB member Holzmann stated that there is no need for further monetary easing yet, but more action may be needed if the crisis worsens. Markets overall expected that there would be further measures by the central bank before the end of 2020. Despite expectations of a dovish ECB stance, the Euro gained ground ahead of the New York open as underlying dollar demand dipped amid expectations of further fiscal stimulus. The single currency strengthened to highs above 1.1780 before stalling.
The NAHB housing index strengthened to 85 for October compared with expectations of no change from September’s reading of 83. The extremely low level of interest rates has continued to underpin the housing sector despite unease over labour-market trends.
Atlanta Fed President Bostic stated that widespread and permanent job losses pose a risk to the economy. Vice-Chair Clarida stated that output would not recover to 2019 levels for at least another year and that it would take even longer than that for unemployment to fall to a level consistent with the maximum employment mandate.
The dollar overall was unable to gain significant traction, but commodity currencies lost some ground as equity markets retreated and the Euro was held below the 1.1800 level. As Wall Street indices moved lower, the Euro failed to gain ground, although ranges were narrow and the currency was resilient.
The Chinese yuan maintained a strong tone on Tuesday with the offshore rate strengthening to 2-year highs which was a significant factor providing underlying Euro protection. The single currency held close to 1.1775 with underlying coronavirus reservations limiting scope for further Euro support.
Risk appetite remained firm ahead of Monday’s US open with fresh speculation that there would be a breakthrough on a fiscal stimulus ahead of the US elections.
The dollar overall was trapped within extremely narrow ranges and settled around 105.40 at the European close with the yen failing to gain strong support.
After another round of talks between US Treasury Secretary Mnuchin and House Speaker Pelosi an aide to Pelosi stated that differences had narrowed and there will be further talks on Tuesday. There was, however, further evidence of resistance from Senate Republicans and an important element of scepticism that there would be a deal ahead of the election. President Trump stated that he would participate in the final election debate this week, but complained over the rules.
There were reports that the Bank of Japan will cut its outlooks for the economy and inflation at next week’s policy meeting. The dollar edged higher against the Japanese currency on Tuesday to trade just above 105.50 with some unwinding of long yen positions, although ranges remained narrow.
Sterling strengthened sharply during European trading on Monday with market expectations that there would be a fresh attempt to secure a trade breakthrough and salvage a trade deal with the EU. The Euro also declined to lows near 0.9020 against the UK currency with a fresh move above 1.3000 against the dollar.
The firm tone in risk appetite was also a significant factor underpinning demand for Sterling, although there was selling interest above 1.3000 against the dollar.
There were notably mixed comments from ECB Cabinet Minister Gove who reiterated that there was no basis at this point for continuing trade talks.
There was, however, a conversation between EU Chief Negotiator Barnier and UK counterpart Frost with Barnier confirming that the EU was willing to intensify talks. This suggested that talks would continue, maintaining an important element of confusion. Subsequently, Frost and the UK government reiterated that there was no basis for continuing talks at this stage, but the two sides would keep in close contact. The UK currency dipped again in choppy trading.
Markets overall tended to look through the rhetoric and assume that some form of trade deal would eventually be put in place, but confidence remained fragile with fears over the economic recovery also an important factor. Sterling faded to below 1.2950 as global risk appetite also deteriorated again while the Euro posted limited net gains. The UK currency was little changed just below 1.2950 against the dollar on Tuesday while the Euro strengthened to near 0.9100.
Swiss sight deposits increased to CHF705.1bn for the latest week from CHF704.6bn the previous week. This suggests that there may have been limited National Bank intervention in the latest week. There was further speculation that the US could label Switzerland as a currency manipulator in its next currency report.
The Euro overall was unable to make headway and settled just above 1.0700 while the dollar dipped below the 0.9100 level. The franc was little changed on Tuesday with underlying concerns surrounding European coronavirus developments supporting the Swiss currency and the dollar was held just below 0.9100.