EUR / USD
The German trade surplus declined in October with solid monthly growth in exports and imports for the month, although there was no significant impact.
There were further reports of potential ECB policy action at next week’s policy meeting with some expectations of a temporary boost to bond purchases. The Euro overall was unable to make any headway ahead of the New York open with underlying yield spreads undermining support with a further decline in short-term Euro yields.
US initial jobless claims declined to 184,000 in the latest week from a revised 227,000 the previous week. This was below consensus forecasts of 215,000 and the lowest figure since 1969. Continuing claims increased to 1.99mn from 1.95mn and slightly above expectations, but the initial claims data maintained confidence in the labour market even with potential distortions surrounding the Thanksgiving period.
The dollar was able to regain further ground the day with commodity currencies losing ground and the Euro dipped below the 1.1300 level.
There was a significant element of caution ahead of the US CPI release on Friday. Consensus forecasts are for a further sharp increase in the headline rate to 6.8% from 6.2% which would be the highest rate since 1982 while the underlying rate is forecast at 4.9% from 4.6%. Stronger than expected data would increase pressure on the Federal Reserve to tighten policy more quickly and announce a change at next week’s policy meeting while a lower release would provide some relief.
Narrow ranges prevailed on Friday with the Euro finding some further support below 1.1300 despite negative underlying sentiment.
Chinese new loans increased CNY1,270bn for November from CNY826bn the previous month, although this was below consensus forecasts of CNY1550bn. There was a stronger increase in total social financing of CNY2,610bn which was only slightly below expectations while money supply growth slowed to 11.7% from 11.9%.
The Chinese central bank announced that it would increase the reserve ratio on foreign exchange purchases to 9% from 7% which was aimed at curbing yuan appreciation and the yuan dipped sharply following the release, although the dollar was unable to make any headway against the yen.
Risk appetite remained more fragile during Thursday with the WHO stating that a further 2-3 weeks would be needed to study the Omicron variant more thoroughly.
US Treasuries strengthened during the day and the 10-year bond yield retreated to below 1.50% which sapped dollar support. The yen also secured an element of defensive support and the dollar dipped below 113.50.
There were further reservations over the outlook for the Chinese property sector, although the yuan recovered from Thursday’s dip lower.
Asian markets overall lost ground during the session and the dollar settled close just above 113.50 with the Euro around 128.20.
Sterling came under further pressure ahead of Thursday’s New York open with a retreat to near 1.3170 against the dollar. Sentiment was undermined by unease over the impact of further coronavirus restrictions with the risk that a sharp increase in Omicron infections would undermine the economy as a whole. There was also a further downgrading of expectations that the Bank of England would raise interest rates next week, especially given coronavirus uncertainty.
The UK currency did avoid a fresh 2021 low against the dollar which helped trigger a recovery to the 1.3200 area despite a generally cautious tone surrounding global risk appetite and the Euro also retreated to just below 0.8550. Sterling gained some net support on valuation grounds.
UK GDP increased 0.1% for October after a 0.6% increase the previous month and below consensus forecasts of 0.4% with further weakness in industrial production and construction. The data will maintain unease over underlying trends in the economy, especially with concerns that the services recovery will falter. Sterling was, however, resilient after the data and held above the 1.3200 level against the dollar while the Euro traded just below the 0.8550 level.
The Swiss franc was unable to secure further gains on Thursday despite a more defensive tone surrounding risk appetite. Markets remained wary over potential National Bank action to curb franc gains and there was also caution ahead of next week’s quarterly policy meeting.
The Euro consolidated around 1.0430 against the franc while the dollar posted a net advance to the 0.9250 area before fading slightly. There is likely to be further position adjustment ahead of next week’s National Bank policy decision with the dollar held around 0.9245 on Friday.