EUR / USD
The ECB held interest rates at 0.0% following the latest council meeting and also made no changes to the asset-purchase programme with bond buying under the PEPP programme continuing until at the least March 2022. The statement did note that the full envelope of bond purchases did not need to be used if there was an improvement in financing conditions. The bank, however, was also ready to recalibrate policy if there is a negative inflation shock over the next few months.
The Euro moved higher on the policy announcement even though markets had not been expecting any further easing measures at this meeting.
ECB President Laggard stated that the bank was monitoring the forex rate very carefully and that currency appreciation is a drag on inflation.
As far as the growth outlook is concerned, Laggard stated that risks to the outlook were tilted to the downside, although the risk is now less pronounced. She added that an ambitious and co-ordinated fiscal stance remains critical. Euro-zone consumer confidence dipped to -15.5 for January from -13.8 previously.
Given the absence of dovish references within the meeting and a weak dollar, the Euro strengthened to highs at 1.2170 following the ECB meeting. The dollar was able to secure a limited recovery towards the European close, but faded again in New York amid negative underlying sentiment.
The Euro-zone PMI business confidence data will released on Friday with expectations that the services sector will contract. The Euro held steady on Friday at 1.2160, although this was based on gains on the crosses rather than a fresh dollar retreat as the US currency secured some wider relief amid more fragile risk conditions.
US initial jobless claims declined slightly to 900,000 in the latest week from a downwardly-revised 926,000 previously and slightly below consensus forecasts of 910,000. Continuing claims declined to 5.05mn from 5.18mn. Despite a slight weekly retreat in claims, there were still concerns over near-term labour-market trends
The Philadelphia Fed manufacturing index strengthened to 26.5 for January from 9.1 previously and above consensus forecasts of 11.0. There was a strong rate of increase in new and unfilled orders while all indicators posted solid gains on the month. There was also further optimism over the six-month outlook.
Construction data was also stronger than expected with an increase in housing starts increasing to 1.67mn from 1.58mn previously and the highest reading since August 2006. The dollar edged higher following the data with a move back above 103.50 as bond yields increased, although overall moves were limited.
Japan’s PMI manufacturing PMI index edged lower to 49.7 from 50.0 previously with the services index at 45.7 from 47.7. Risk conditions were slightly more fragile in Asia on Friday amid reservations over near-term coronavirus developments which underpinned the Japanese currency and the dollar traded around 103.65.
The CBI industrial orders index declined to -38 for January from -25 previously and weaker than consensus forecasts of -35. Output was broadly unchanged, but business confidence dipped and there was a dip in export orders which will cause significant concerns given evidence that global manufacturing was performing well. PMI business confidence data will be watched closely on Friday with a risk that trade disruption and the impact of stock building late last year will drag indices lower.
Sterling continued to gain an element of support from robust global risk conditions amid expectations of sustained global reflation policies.
Sterling broke above the 1.3700 level against the dollar and pushed to fresh 32-month highs just below 1.3750, but was unable to sustain the gains as the dollar attempted to recover ground. The Euro dipped to 8-month lows around 0.8830 before a limited recovery to near 0.8860.
UK GfK consumer confidence declined to -28 for January from -26, but slightly above consensus forecasts. The retail sales increase was held to 0.3% for December after a 3.8% decline the previous month and below expectations of 1.2%. Government borrowing was also higher than expected at £40.6bn for the month. Sterling dipped back below 1.3700 against the dollar with the Euro at 0.8890 as more fragile risk conditions also hampered the UK currency.
The Swiss franc was held in relatively tight ranges during Thursday with the Euro again held below 1.0800 which triggered a fresh retreat to the 1.0765 area. The Euro was unable to derive any significant support from the ECB statement and press conference and the Swiss currency also resisted selling pressure despite slightly less dovish rhetoric from other major central banks. The dollar dipped to lows at 0.8850 amid negative US sentiment before a slight recovery.
There was little net change on Friday with the franc supported by a more cautious risk tone and the dollar was held just above 0.8850.