EUR / USD
The headline Euro-zone CPI inflation rate was confirmed at 4.1% for October, although there was a slight downward revision to the core rate to 2.0% from 2.1%.
ECB Council member Schnabel stated that by continuing to buy bonds, the ECB could signal that a rate hike is not imminent.
Underlying Euro sentiment remained weak, although it secure an element of relief ahead of Wednesday’s New York open with a pause in the selling pressure and it edged back above the 1.1300 level against the dollar. There were still expectations that underlying yield spreads and the dovish Euro stance would undermine the single currency over the medium term with markets also looking to assess the extent of net capital outflows from the Euro area.
US housing starts declined marginally to an annual rate of 1.52mn from a revised 1.53mn previously and slightly below consensus forecasts while building permits increased to 1.65mn from 1.59mn which had little overall impact.
The dollar attempted to post renewed gains after the New York open, but the Euro found further support just below the 1.1300 level with an element of short covering on the main crosses. The US currency was unable to make headway on Thursday as commodity currencies attempted to stabilise, although overall sentiment held firm. The Euro traded just above the 1.1300 level with the market reluctant to push the currency lower again without at least a limited correction.
US Treasuries were mixed in early US trading on Wednesday with the 10-year yield settling around 1.63%. Underlying dollar sentiment held firm, although there was tough resistance on approach to 115.0 against the yen which helped trigger a limited initial correction, especially with US equities drifting lower during the day.
There was a sharper correction after the European close with the dollar sliding to lows just below 114.00 as the yen also gained on the crosses.
Chicago Fed President Evans stated that he is looking for inflationary pressure to recede, but will be monitoring the situation well into the middle of 2022.
Markets remained on alert for an announcement by President Biden on whether Fed Chair Powell will be nominated for a second term or whether Brainard will be chosen instead. Sources indicated that an announcement was likely within the next few days.
Asian equities overall tended to drift lower on Thursday, although ranges were narrow with the dollar edging higher to around 114.15 and the Euro near 129.20.
Sterling continued to move higher following the latest inflation release with the higher than expected print for the October data triggering fresh unease and reinforcing expectations that the Bank of England would sanction an interest rate hike at the December policy meeting.
Gains did, however, slow later in the day given expectations that higher rates had already been priced in to money markets.
Bank of England MPC member Mann stated that short-term inflation expectations were lagging the actual CPI rate and she was confident that people believe that the bank will bring inflation back to the 2% target. She added that goods inflation was expected to moderate during 2022 as supply difficulties ease. There were no direct comments on the outlook for near-term interest rate decisions.
Brexit Minister Frost stated that a deal with the EU over the Northern Ireland protocol could be achieved before Christmas which helped underpin sentiment to some extent, although there were still reservations over underlying tensions and yield trends tended to dominate.
The Euro remained vulnerable and retreated to fresh 20-month lows just below the 0.8400 level. The UK currency was held below 1.3500 against the dollar as the US currency maintained a firm overall tone. Sterling held just below 1.3500 against the dollar on Thursday with the Euro just below 0.8400.
Markets will continue to monitor comments from Bank of England officials in the short term while the latest retail sales data will be released on Friday.
The Swiss franc resisted further losses on Wednesday and was again resilient against major currencies. The Euro was unable to make further headway and drifted back towards the key 1.0500 level during the day while the dollar peaked around 0.9330 before edging lower again.
The Swiss franc continued to gain underlying support from expectations that inflation control would maintain currency strength over the longer term, especially given the current focus on global inflation trends. The franc maintained a strong tone on Thursday with the dollar trading below the 0.9300 level.