EUR / USD
The Euro was unable to secure a significant recovery ahead of Tuesday’s New York open with expectations of a very dovish ECB policy continuing to sap underlying support. On-going concerns surrounding coronavirus tends and renewed upward pressure on gas prices also undermined confidence.
Headline US retail sales increased 1.7% for October, above consensus forecasts of 1.2% and there was a marginal upward revision for September to 0.8% from 0.7%.
There was a 1.8% increase for auto sales on the month with a strong 3.8% increase in electronics goods.
Underlying sales increased 1.7% for the month, also above market expectations of 1.0% while there was a 1.6% monthly increase in the control group. The data boosted confidence in the outlook, especially as it tended to ease potential worries triggered by the sustained decline in consumer confidence, although sales will be boosted by higher prices. Import prices increased 1.2% for October with a 10.7% increase over the year as fuel price imports posted an annual increase of close to 87%.
The dollar secured a net advance following the data and maintained traction into the European close to post a fresh 16-month high. Commodity currencies lost ground and the Euro retreated to fresh 16-month lows around 1.1320. The dollar strengthened further in Asia on Wednesday with the Euro sliding to fresh 16-month lows around 1.1265 before a recovery to around 1.1300 with central bank policy trends remaining a key market focus.
There was a stronger than expected rebound of 1.6% in US industrial production after a 1.3% decline the previous month with a strong rebound in capacity use.
The NAHB housing index strengthened to 83 for October from 80 the previous month, maintaining confidence in the construction sector.
Treasury Secretary Yellen stated that inflation might subside by the second half of 2022, although the underlying tone was significantly less confident than previously. Inflation developments continued to have a significant impact on the political debate with pressure for the Administration to take action.
Markets continued to monitor any announcement on whether Fed Chair Powell would be nominated for a second term. The yen was unable to make any headway on the crosses and the dollar posted a solid net advance to around 114.65 at the European close as the 10-year yield held close to 3-week highs.
San Francisco Fed President Daly maintained a dovish tone with comments that patience is the best action and that it is better to wait for greater clarity rather than raise rates pre-emptively. She added that raising rates now would not fix high inflation, but would slow the recovery.
Asian equities were again mixed amid reservations surrounding the Chinese outlook while the dollar advanced to a 56-month high near the 115.00 level.
Sterling continued to make headway in European trading on Tuesday with confidence underpinned by the latest labour-market data. The data overall suggested that the labour market had tightened further and, given that the Bank of England had wanted evidence of labour-market strength before sanctioning an increase in interest rates, there were increased expectations that the central bank would move to tighten in December.
Domestic yields increased which provided net support for the UK currency and overall risk appetite held steady which helped underpin sentiment.
Sterling was unable to hold above 1.3450 against the strong dollar and drifted lower as the US currency posted further net gains, but there were notable advances on the main crosses. In this environment, the Euro retreated to lows just below 0.8430.
The latest UK CPI inflation data recorded a sharp increase in the headline rate to 4.2% from 3.1% previously and above consensus forecasts of 3.9%. This was the strongest reading since the beginning of 2012 and the core rate also increased to 3.4% from 2.9%. The data increased expectations that the Bank of England would raise rates at the December meeting. Sterling strengthened to near 1.3450 against the firm dollar with the Euro at 20-month lows close to 0.8400.
The Swiss franc lost ground on Tuesday with the Euro recovering some ground after the ability to hold support just above 1.0500. There was also speculation that the National Bank would intervene more aggressively, although there was still a lack of conviction that this determination would hold over the medium term.
The Euro was unable to hold the 1.0550 area and retreated to 1.0530 while the dollar posted a strong advance to highs just above 0.9300.
The Franc continued to out-perform the Japanese yen, although the dollar posted a fresh advance to 6-week highs around 0.9320.