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EUR / USD

The Euro moved sharply lower in early Europe on Thursday with lows just below 1.2250 as the US dollar secured a technical comeback after recent selling pressure.

The Euro-zone services sentiment index weakened to -17.4 from -17.1 the previous month, although there was an improvement in industrial confidence to -7.2 from -10.1 previously. Earlier, Germany reported an increase in factory orders of 2.3% for November from 3.3% the previous month. Euro-zone consumer prices declined 0.3% in the year to December, unchanged from the previous month and slightly below market expectations of 0.2% while the core rate remained at 0.2%.

US initial jobless claims declined to 787,000 in the latest week from a revised 790,000 the previous week and slightly below consensus forecasts of 800,000. Continuing claims declined to 5.07mn from 5.20mn the previous week and also slightly below market expectations.

The ISM non-manufacturing index strengthened to 57.2 for December from 55.9 previously and confounded expectations of a monthly decline. There was also a slightly faster pace of new orders on the month, but employment declined and order backlogs also declined. Given coronavirus restrictions, the headline data provided significant relief, although companies were cautious over the outlook. Relatively narrow ranges prevailed with further Euro support just below 1.2250.

The Euro was hampered to some extent by concerns over a slow pace of coronavirus vaccine rollouts in the Euro-zone area.

Germany also reported its highest daily coronavirus death toll and the single currency traded around 1.2260 against the dollar with narrow ranges prevailing.

The latest employment report is scheduled for release on Friday with markets braced for a weaker report, although the impact is liable to be limited.

 

JPY

China’s FX reserves increased $38.0bn for December to $3.22trn, maintaining underlying strength in the balance of payments position which will underpin the yuan.

Political developments in Washington continued to dominate the media. After an all-night session, Congress formally certified Biden as winning the November election with Harris confirmed as Vice President. Following overnight violence, there were further calls for President Trump to be removed from office through invoking the 25th amendment, although the overall mood calmed during the day which helped underpin risk appetite.

Higher bond yields were again a significant factor underpinning the US dollar during the day. Fresh gains in equities also had some impact in curbing defensive demand for the Japanese currency. In this environment, the dollar strengthened to highs around 103.80 at the European close. Chicago Fed President Evans stated that there could be a tapering of bond purchases late in 2021 or early 2022 if strong progress was made. The dollar held gains as Wall Street indices posted fresh record highs.

China’s central bank continued its efforts to curb substantial capital inflows which limited yuan gains. There was some relief over a more moderate tone from President Trump which underpinned risk appetite. US bond yields continued to move higher and the dollar settled just below the 104.00 level in early Europe.

 

GBP

The UK PMI construction-sector index declined marginally to 54.6 for December from 54.7 the previous month and in line with consensus forecasts. There was further strong growth in the house-building sector and new orders continued to increase while employment also increased slightly on the month.

Firm global risk appetite continued to provide an element of protection to Sterling during the day, especially with further gains in the FTSE 100 index. UK equities under-performed substantially last year with pressure for funds to increase their UK weightings this year, especially with a Brexit trade deal in place. 

Although there was an easing of new daily coronavirus cases, deaths increased further and there were further concerns over the near-term economic outlook and increased speculation that the Bank of England could introduce negative interest rates, possibly as early as the February meeting. Sterling settled below 1.3600 against the dollar after finding support below 1.3550 while the Euro settled around 0.9040. There was little change above 1.3550 against the dollar on Friday as volatility eased.

 

CHF

 

The Swiss retail sales increased 1.7% in the year to November from 4.3% previously, although global market conditions dominated. Stronger global risk appetite and higher bond yields in the Euro-zone and US had a significant impact in curbing demand for the Swiss franc on defensive grounds. The Euro strengthened to highs above 1.0850 before fading while the dollar pushed to highs just above 0.8850.

Swiss franc demand remained slightly weaker on Friday as equity markets maintained a firm tone with the dollar continuing to trade above 0.8850.

 

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