EUR / USD
Euro-zone industrial production declined 0.7% for September with the year-on-year decline at 6.8% from 6.7% previously and Euro-zone confidence remained fragile.
The Euro, however, was able to resist a further test of the 1.1750 area against the US dollar and edged higher ahead of the New York open. There was an element of hope that coronavirus cases in the Euro-zone area were starting to peak, although there was still a high degree of uncertainty.
US consumer prices were unchanged for October, below expectations of a 0.2% increase, and the year-on-year rate declining to 1.2% from 1.4% previously. Core prices were also unchanged on the month with the annual rate edging lower to 1.6% from 1.7% and below market expectations of 1.8%.
Initial jobless claims declined to 709,000 in the latest week from a revised 757,000 previously and below expectations of 735,000. Continuing claims declined to 6.79mn from 7.22mn previously. There was, however, a further increase in pandemic assistance claims for the latest reporting week.
The data maintained expectations that the Federal Reserve would maintain an extremely accommodative monetary policy which limited dollar support.
ECB council member Muller stated that he favours tools that directly reach the economy like TLTROs as well as bond purchases and the rhetoric was in line with comments from senior central bank officials. The Euro held little changed around 1.1800 in early Europe on Friday with little net dollar change.
US yields moved lower following the latest US inflation data which sapped support for the US currency, especially with pressure for on-going Fed economic support.
There were further underlying concerns over US coronavirus developments as the number of cases continued to increase. The number of hospital admissions increased further and New York stated that schools would be shut if positivity rates continue to increase. Concerns over further short-term damage to the US economy triggered a more cautious tone surrounding risk which limited potential yen selling, especially with US equities closing lower.
President Trump signed an executive order forbidding investment in Chinese firms controlled by the military. The move increased unease over further restrictions before Trump leaves office and there were also doubts whether a Biden Administration would reverse moves quickly. US equity futures were little changed on Friday, but the yen maintained a firm tone and the yuan dipped sharply. The US currency dipped below the 105.00 level and the Euro retreated to below the 124.0 level.
Overall confidence in the UK outlook remained fragile after the latest GDP data, especially with expectations of a fourth-quarter contraction. The weak rebound in investment for the third quarter also maintained concerns over the longer-term outlook while international comparisons were notably unfavourable.
Bank of England Governor Bailey stated that the latest vaccine developments were broadly in line with the bank’s forecast assumptions. He also commented that he does not have a date in mind for the negative rates review outcome, although there was still a lot of work to do.
The NIESR estimated that GDP increased 0.3% for October with a sharp 12.3% contraction for November as the second lockdown in England takes effect. It also forecast a 2.2% GDP contraction for the fourth quarter, maintaining unease over the outlook.
There was no positive rhetoric surrounding UK/EU trade talks and some hints from sources that little progress was being made. In this context, there was a reluctance to buy Sterling. The UK currency failed to regain ground and dipped to lows near 1.3100 against the dollar while the Euro strengthened sharply to the 0.9000 area.
There was a sharp increase in new coronavirus cases reported on Thursday which unsettled sentiment, although there were also reports that senior Prime Minister advisor Cummings would leave before the end of the year. The move sparked some fresh speculation that a Brexit deal was close and Sterling regained some ground with the Euro retreating from 0.9000. There is scope for choppy trading on Friday due to pre-weekend position adjustment.
The Euro was unable to make headway against the franc on Thursday and was held just below 1.0800 at the European close after failing to hold above this level. The dollar retreated to below 0.9150 as caution prevailed in equity markets.
Reservations over short-term damage to the European and US economies offset medium-term optimism over vaccine developments which provided significant protection for the Swiss currency. The Swiss currency was little changed on Friday with precious metals holding steady and the dollar just below 0.9150.