EUR / USD
Euro-zone retail sales declined 2.0% for September with the annual increase slowing to 2.2% from 4.4%. There were further concerns over the short-term economic outlook and the EU Commission revised down its GDP forecasts in the latest update with growth of 4.2% expected for 2021 after a 7.8% contraction for 2020.
The Euro maintained a strong tone ahead of the New York open as risk appetite continued to strengthen. Commodity currencies also made strong gains as the US dollar overall remained on the defensive with downward pressure on yields continuing to undermine the US currency.
US jobless claims declined only slightly to 751,000 for October from a revised 758,000 previously and above consensus forecasts of 733,000. Continuing claims declined to 7.29mn from 7.82mn the previous week. Challenger reported a decline in job cuts to 81,000 for October 119,000 previously, although there was an annual increase of 81%. The dollar overall remained on the defensive with the Euro strengthening to highs above 1.1850 before a significant correction to the 1.1800 area.
The Federal Reserve held interest rates in the 0.00-0.25% range following the latest policy meeting and made no changes to the bond-purchase programme. It reiterated that it was aiming for an inflation rate moderately above 2% for some time so that it averages 2% and is committed to using all tools to support the economy.
Fed Chair Powell stated that the pace of improvement has moderated and that the outlook is extraordinarily uncertain. The overall rhetoric was dovish which continued to erode US dollar support. Dollar selling eased slightly on Friday, although the Euro held above the 1.1800 level even with disappointing German industrial output data.
As far as the US Presidential election is concerned, counting continued to the states which have still not been called, but progress remained slow amid heavy volumes of main-in votes. The Trump campaign continued to lodge legal challenges to the results and counting of votes claiming that there had been fraud.
Equities continued to make strong headway and risk appetite remained robust despite these concern. The yen was resilient and US yields continued to move lower which undermined dollar support. The US currency declined to 7-month lows below 104.00 as the US currency registered wider losses. There were also fresh concerns surrounding US coronavirus cases which will curb activity. The latest employment data will be released on Friday with employment growth set to slow.
The dollar continued to lose ground following the Federal Reserve statement with a dip below the 103.50 level. Japanese Prime Minister Suga stated in parliament that exchange rate stability was extremely important and there will be speculation that the Finance Ministry will engage in verbal intervention to curb yen gains. The Chinese yuan held a firm tone and the dollar was held close to 103.50 in early Europe despite the intervention risk. Latest updates from the US election continued to suggest that Biden would secure a majority in the Electoral College, especially with Trump’s lead in Pennsylvania narrowing sharply.
The UK PMI construction index declined to a 5-month low of 53.1 for October from 56.8 in September and below consensus forecasts of 55.0. There was further strong growth in the residential construction sector, but the civil engineering sector contracted sharply for the month while employment continued to decline on the month.
Following the Bank of England move to increase QE bond purchases by a further £150bn, the government announced that the furlough scheme would be extended until the end of March 2021 as fears over the employment outlook increased. The scheme will protect jobs, but also put further sustained upward pressure on the budget deficit. Confidence in the short-term economic outlook remained weak with the Bank of England forecasting a GDP contraction for the fourth quarter.
Sterling was underpinned by hopes that economic scarring would be minimised while the surge in global equities also continued to provide underlying support. The UK currency strengthened to 2-week highs above 1.3100 against the dollar while the Euro edged lower to the 0.9000 area. Sterling held firm on Friday and held above 1.3100 against the dollar with markets also monitoring development surrounding Brexit trade talks which are set to continue next week.
Swiss National Bank member Maechler stated that the bank had not yet reached the limit of its interventions, maintaining expectations of further franc selling. With evidence that the bank was monitoring dollar trends, there will be speculation that intervention will be stepped up if the dollar slide continues.
The franc lost ground on Thursday as risk appetite remained strong, although it recovered from its worst levels with the Euro retreating to 1.0700 from 1.0730 while the dollar found some support below the 0.9050 level. The US currency retreated to near 0.9030 on Friday and close to 2-month lows.