EUR / USD
The Euro edged higher ahead of Thursday’s New York open, although overall ranges were narrow with buyers still struggling to make headway.
ECB council member Holzmann stated that quantitative easing has to stop given that high inflation is likely to persist, but there were still expectations that the ECB overall would maintain a dovish policy stance which would limit underlying Euro support. Markets priced out a potential interest rate increase in 2022.
US initial jobless claims declined marginally to 268,000 in the latest week from a revised 269,000 previously and slightly above consensus expectations. Continuing claims declined to 2.08mn from 2.21mn previously, but below market expectations and the data maintained underlying confidence in the labour market.
The Philadelphia Fed manufacturing index strengthened to 39.0 for November from 23.6 previously and well above market expectations of 25.0. There was a stronger increase in new orders while shipments continued to increase at a strong rate and new orders also posted a strong gain.
There was a slight slowdown in the rate of employment growth while both prices paid and received at a stronger pace on the month. Indeed, the prices received component increased to the highest level since June 1974 which maintained concerns over inflation pressures.
New York Fed President Williams stated that inflation pressures were becoming more broad-based and future expectations are rising. He added that this is a trend that policymakers are watching closely with markets seeing a more hawkish bias from key Fed members.
The dollar overall was still unable to make significant headway and the Euro continued to edge higher with a move above the 1.1350 level at the European close. The Euro peaked around 1.1370 before edging lower on Friday, although there was wariness over potential position adjustment into the weekend.
The Kansas City Fed manufacturing index retreated to 17 for November from 25 previously. while pricing pressures remained strong. US Treasuries posted limited net gains on Thursday despite the firm economic data and underlying inflation concerns. Yields drifted lower which undermined potential US dollar support, although the yen was also unable to gain significant support and edged lower on the crosses.
Chicago Fed President Evans stated that he is not expecting an increase in interest rates until 2023, but he did admit that he could be wrong in this analysis. Atlanta head Bostic stated that he expects a normalisation of policy by mid-2022 with rhetoric continuing to be monitored closely.
Markets remained on alert for a President Biden announcement on his nomination for Fed Chair and whether Powell will get a second term.
There were still underlying reservations over the Chinese property sector with rating agency S&P stating that default is still highly likely, although the overall market impact was limited. The yen was unable to gain significant traction on the major crosses and the dollar secured a limited net advance to around 114.35
There were no major UK developments during Thursday with Sterling continuing to gain net support from expectations of a December interest rate increase. Sterling was, however, unable to hold above the 1.3500 level which triggered a limited correction and the Euro also corrected from 20-month lows near 0.8380 to regain 0.8400.
Irish Foreign Minister Coveney expressed disappointment over the UK stance on the Northern Ireland protocol which also hampered the UK currency to some extent, although the currency overall held firm and there were other reports that there was scope for a compromise on the European Court of Justice.
The GfK consumer confidence recovered slightly to -14 for November from -17 previously, although consumers were less confident in the outlook for their own personal finances. Retail sales increased 0.8% for October, slightly above consensus forecasts and the first increase since June. There was a stronger increase in core sales with Sterling trading around 1.3500 against the dollar with the Euro around 0.8415 as risk appetite held steady and rate increase expectations continued.
The Swiss franc maintained a firm tone ahead of the New York open and the Euro again retreated to test the important 1.0500 area. There were further expectations that the National Bank would defend this level through intervention and the Euro crawled higher at the European close. The dollar posted significant losses to near 0.9250.
Expectations of long-term inflation control continued to protect the Swiss currency, especially given the track record of reserving value.
The franc was little changed on Friday with the dollar trading around 0.9260.