EUR / USD
The Euro maintained a firm tone into the New York open as the dollar remained on the defensive. Expectations of an UK/EU trade deal also provided an element of support to the single currency. There was further resistance on approach to the 1.1900 area with speculation that the ECB would look to curb potential currency gains.
US housing starts increased to an annual rate of 1.53mn for October from 1.46mn previously and above market expectations of 1.46mn while building permits were unchanged at 1.55mn for the month. Although interest-rate sensitive areas of the economy remain strong, overall confidence in the outlook stumbled, especially with concerns over the impact of tighter restrictions on activity due to increased coronavirus cases.
New York Federal Reserve President Williams warned that a loss of fiscal support could slow the economy in coming months and he also noted that the central bank could take additional action if necessary. Richmond head Barkin warned over the risks posed by any early ending of emergency lending programmes. The jobless claims data on Thursday will be monitored closely for further evidence on labour-market trends.
The dollar overall retreated for the fifth successive session with commodity currencies making net gains on the day. The single currency was, however, again unable to sustain gains and faded. The US currency regained some territory on Thursday amid a more cautious stance towards the near-term outlook with the Euro near 1.1850.
Japan reported a record high number of new coronavirus cases at close to 1,750 for Wednesday, although the figure is notably contained in relation to the US and much of Europe. Risk appetite briefly strengthened following another positive set of data from Pfizer on the coronavirus vaccine. The company announced that latest data indicated 95% efficacy and that it had met requirements to apply for emergency-use approval.
US yields edged lower which eroded potential dollar support and the yen remained resilient. In this environment, the dollar retreated to lows just below 103.70 with only a marginal recovery. There was speculation that a firmer Chinese yuan over the medium term would tend to push the US dollar weaker.
Wall Street equities closed lower with sentiment hampered by an announcement that New York schools would close temporarily before re-opening with additional safety measures. The US coronavirus death toll also increased to above 250,000 which undermined sentiment as further state restrictions came into effect.
Tokyo raised its coronavirus alert to the highest level as cases continued to increase and Asian equities lost ground which underpinned the Japanese currency. Markets remained on alert for verbal intervention from the Japanese Finance Ministry and the dollar settled around 103.90 with the Euro just below the 123.0 level.
There was only limited reaction to the latest UK CPI inflation data, although Sterling edged slightly higher. Bank of England chief economist Haldane stated that the economy surpassed expectations for the third quarter, but that expectations for the fourth quarter were very uncertain. Economic prospects for next year appear materially brighter, although he also commented that the benefits of easing rates below the current lower bound of just above zero appears to be significant.
Sterling overall maintained a firm tone amid increased expectations that the EU and UK would conclude a trade deal within the next few days. The UK currency strengthened to highs around 1.3300 against the dollar while the Euro retreated to lows just below 0.8920.
There were indications that the UK and Canada were close to signing a trade deal. There were, however, also reports of pressure on the EU Commission to release contingency plans for a no-deal scenario. Sterling was also hit by pressure for a correction after failing to hold 1.3300 against the dollar with a retreat to below 1.3250 as a slightly more global cautious risk tone undermined support. The Euro also recovered to just above 0.8950. Rhetoric from the EU Summit will be watched closely on Thursday and vaccine developments will also be significant with some encouraging reports from the UK Oxford trial, but Sterling struggled to gain fresh traction.
The Swiss franc was resilient on Wednesday despite the firm tone surrounding risk appetite and expectations of positive vaccine developments. Near-term confidence in the European outlook remained fragile. The Euro was again unable to sustain an advance against the Swiss franc during Wednesday and retreated to just below 1.0800 from 1.0830 highs. The dollar also dipped below the 0.9100 level amid wider losses. There was a slightly more defensive risk tone on Thursday which limited scope for franc selling with the Euro settling just below 1.0800 while the dollar edged back above 0.9100 in tentative markets.