EUR / USD
German GDP increased 2.3% for the third quarter of 2021, marginally above expectations, although the year-on-year growth rate slowed to 1.8% from 1.9%. The Euro-zone CPI inflation rate jumped to 4.1% for October from 3.4% previously and well above consensus forecasts of 3.7%. The core rate also increased to 2.1% from 1.9% and above market expectations of 1.9%. ECB council member Holzmann stated that the ECB will need to be flexible next year due to the uncertain inflation outlook.
The Euro, however, was unable to make further headway into the New York open and initially drifted lower despite the higher inflation data.
The US PCE prices index increased 0.2% for September, in line with consensus forecasts with the annual increase unchanged at 3.6% and marginally below expectations of 3.7%. Personal income declined 1.0% on the month with a 0.6% increase in spending.
The Chicago PMI manufacturing index strengthened to 68.4 for October from 64.7 with a recovery in new orders while there were further serious supply-side difficulties.
The Euro overall came under heavy selling pressure with a drop below 1.1600 triggering further selling as the single currency more than reversed gains seen on Thursday. Overall confidence in the ECB policy-making process remained weak, although German yields continued to edge higher with the Euro sliding to below 1.1560.
CFTC data recorded little change in short Euro positions and narrow ranges prevailed on Monday with the Euro just above 1.1550 as it remained vulnerable.
There was further choppy trading on Friday in US Treasuries with 5-year yields moving higher on the day while the 10-year yield retreated from daily highs. The dollar overall was able to make headway and edged above the 114.00 level against the yen.
CFTC data recorded a further increase in short yen positions to 107,000 contracts in the latest week from 103,000 previously and the highest reading since December 2018 which will maintain the potential for a squeeze on yen shorts if there is a shift in sentiment.
The Chinese PMI manufacturing index edged lower to 49.2 for October from 49.6 the previous month and slightly below market expectations while the non-manufacturing index also retreated to 52.4 from 53.2 the previous month which will maintain unease over underlying Chinese growth trends. The Caixin PMI manufacturing index, however, edged higher to 50.6 from 50.0 which provided some relief.
Japan’s LDP secured a stronger than expected result in the general election and Prime Minster Kishida stated that a full-stimulus plan would be compiled by the middle of November. Domestic equity markets strengthened and the dollar posted a net advance to near 114.30 against the yen with the Euro just above 132.0.
UK mortgage approvals declined to 72,700 for October from 74,200 the previous month, although this was above consensus forecasts and there was a big increase in mortgage lending on the month. There was, however, only a small increase in consumer credit on the month which indicated further reservations over consumer spending. The data had little overall impact on markets with a focus on inflation pressures and the potential Bank of England reaction.
Sterling was hampered to some extent by underlying concerns over Brexit developments with Britain and Franc continuing to squabble over fishing.
Dollar strength dominated after the New York open with Sterling sliding below 1.3700 against the dollar while the Euro retreated to near 0.8440.
CFTC data recorded a sharp increase in long, non-commercial Sterling positions to 15,000 contracts in the latest week from below 2,000 the previous week, limiting the potential for further buying and increasing the risk of a correction after this week’s Bank of England policy meeting.
In a report on Sunday, the CBI remained broadly optimistic over the UK outlook, but Sterling was unable to make headway on Monday. There were further concerns over Brexit tensions and uncertainty ahead of Thursday’s Bank of England policy decision with the UK currency drifting lower to near 1.3650 against the dollar.
The Swiss KOF business confidence index edged lower to 110.7 for October from 111.0 previously, but significantly above consensus forecasts.
The franc maintained a strong underlying tone during Friday with the Euro sliding to 17-month lows below the 1.0600 level while the dollar dipped to test the 0.9100 level before rallying strongly to 0.9165 at the European close. The franc gained support from the limited central bank balance-sheet expansion.
National Bank action will be monitored closely in the short term, but the franc held firm on Monday with the dollar around 0.9165.