EUR / USD
The dollar edged lower ahead of Friday’s New York open, although overall ranges were relatively narrow with markets looking for fresh direction.
US retail sales increased 0.7% for September compared with expectations of a 0.2% decline and there was a small upward revision for August to a 0.9% gain. The year-on-year increase slowed slightly to 14.0% from a revised 15.4% previously. There was a slight increase in car sales compared with expectations of a further decline which boosted overall sales. Underlying sales increased 0.8%, above market expectations of a 0.5% increase while there was a 0.8% increase in the control group.
The New York Empire manufacturing index retreated to 19.8 for October from 34.3 previously and below consensus forecasts of 25.0. There was also a slowdown in growth for new orders, shipments and unfilled orders. There was a further significant employment increase while the increase in prices received slowed slightly, but there was a stronger rate of increase for costs. Companies were slightly more optimistic over the outlook with strong upward pressure on costs expected to continue.
The University of Michigan consumer confidence index edged lower to 71.4 for October from 72.8 previously and below consensus forecasts of 73.1 as the current conditions and expectations readings both retreated. One-year inflation expectations increased to 4.8% from 4.6% while the five-year index at 2.8% from 3.0%.
The dollar edged higher after the sales data with commodity currencies also correcting weaker and the Euro consolidated just below the 1.1600 level.
CFTC data recorded a small reduction in short Euro positions while there was a marginal reduction in the overall long dollar position, but the US currency will be vulnerable if sentiment shifts. The dollar posted a net advance on Monday as yields moved higher with the Euro retreating to around 1.1580.
JPY
US Treasuries lost ground after the retail sales release and were unable to regain ground after the Wall Street open with the 10-year yield increasing to near 1.57%. Higher yields helped underpin the dollar and the yen overall remained on the defensive as equity markets made headway. The dollar posted fresh 35-month highs near 114.50 before a limited correction into the New York close with the yen still vulnerable on the crosses.
CFTC data recorded a further increase in short yen positions to near 77,000 contracts in the latest week, the largest short position since May 2019. Markets will be looking to push the yen weaker in the short term, but the positioning data will maintain the risk of a sharp correction if sentiment deteriorates.
Chinese GDP data recorded an increase of 4.9% in the year to the third quarter from 7.9% previously and marginally below market expectations. The industrial production data was also weaker than expected, although there was a recovery in retail sales. Equity markets edged lower on Monday, but the dollar was underpinned by higher yields and held around 114.25 against the yen with the Euro around 132.40 as the Japanese currency was unable to recover ground on the main crosses.
GBP
Sterling gradually gained ground during Friday as higher yields continued to underpin the currency. There was further speculation that the Bank of England would push for an early in interest rates to help curb inflation pressure. The gains in equity markets and interest in reflation trades also helped underpin the UK currency. There was a move above the 1.3750 level against the dollar while the Euro retreated to 19-month lows near 0.8425 as support levels were broken.
CFTC data recorded a decline in net short Sterling positions to 12,000 contracts from 20,000 previously which continued to suggest a lack of clear direction within funds.
The Rightmove index recorded a 1.8% increase in house prices for October. In comments over the weekend, Bank of England Governor Bailey stated that the central bank will have to act to curb inflation. He added that monetary policy cannot solve supply-side problems, but it will have to act if there was a risk to medium-term inflation and expectations. He still did not see a general pattern of labour market pressures with mixed pressures within sectors. The comments overall underpinned Sterling, but it was unable to extend gains and failed to hold above 1.3750 against the dollar while the Euro held around 0.8435 after briefly hitting fresh 19-month lows near 0.8420.
CHF
The Swiss franc retreated ahead of Friday’s New York open with a suspicion that the National Bank had intervened to weaken the currency. The latest data on sight deposits will be watched closely to assess whether the bank had been selling the currency.
The Euro strengthened to highs around 1.0740 before fading while the dollar secured a limited net advance. The Euro was unable to hold the gains on Monday, but did hold above 1.0700 while the dollar edged higher to 0.9250 amid the increase in US yields and wider US currency advance.
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