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The Euro-zone flash manufacturing index edged lower to 57.8 for November from 58.4 the previous month, but marginally above consensus forecasts. The services-sector recorded a larger than expected decline to an 8-month low of 53.3 from 55.9 the previous month with the German services sector in contraction.

The ECB left interest rates at 0.0% following the latest policy meeting, in line with expectations. The central bank announced that the PEPP bond purchases would end in March 2022. The bank, however, also announced that the on-going APP bond-buying would continue at an increased rate of EUR40bn in the second with a reduction to EUR30bn for the third quarter and EUR20bn for the fourth quarter. Reinvestments will continue into 2024 and there was no formal end date for APP purchases.

The ECB increased its 2022 inflation forecast sharply to 3.2% from the 1.7% forecast in September while there was a downgrading of growth forecasts.

The Euro increased sharply in an immediate response with money markets signalling an increased potential for a rate increase next year. President Lagarde stated that the risks to the outlook were balanced, although she reiterated that the conditions for a rate hike were very unlikely to be met in 2022.

The Euro peaked above 1.1350 before a retreat to near 1.1300 towards the European close as hawkish members expressed concerns over on-going bond purchases

The Euro still found support on dips and advanced to 1.1330 in early Europe on Friday with position adjustment likely to be an important element during the day.


US initial jobless claims increased to 206,000 in the latest week from 188,000 previously and slightly above consensus forecasts of 200,000 while continuing claims declined to 1.85mn from 2.00mn previously. Housing starts increased to an annual rate of 1.68mn from 1.50mn previously and above expectations of 1.57mn while building permits increased to an annual rate of 1.71mn. The Philadelphia Fed manufacturing index retreated to 15.4 for December from 39.0 previously and well below consensus forecasts of 30. There was a sharp slowdown in the new orders and unfilled orders components with shipments growth also slowing. Employment continued to increase strongly on the month while there was a slight easing of inflation pressures.

US Treasuries lost ground at the New York open, but there was a quick reversal with yields losing ground and the 10-year yield below 1.45%. The dollar was unable to hold gains and selling increased after a dip back below the 114.00 level with a retreat to 113.70 at the European close.

The Bank of Japan made no changes to monetary policy with a slight lessening of coronavirus support measures. Regional equity markets lost ground amid a more tentative risk tone and reservations over the Chinese outlook. The dollar remained on the defensive as it traded just above 113.50 against the yen.


According to flash data, the UK PMI manufacturing index retreated to a 3-month low of 57.6 from 58.1 previously and in line with consensus forecasts. There was a sharper decline in the services-sector index to a 10-month low of 53.2 from 58.5 in October with a notable retreat in business confidence while cost pressures eased.

The Bank of England increased interest rates by 0.15% to 0.25% at the latest meeting. Although there had been speculation over a rate hike at this meeting, the consensus was for the bank to wait until February. The bank noted uncertainties surrounding Omicron, but considered that elevated inflation pressures demanded immediate action, especially with inflation set to increase to 6% early next year. There was an 8-1 vote for the decision with Tenreyro voting to wait for more information.

Sterling jumped higher after the data with a move to above 1.3350 against the dollar while the Euro dipped to near 0.8450. Sterling failed to hold best levels amid reservations over Omicron developments, although it did hold above 1.3300. Pressure on PM Johnson increased as the government lost a key by-election, but there were reports of a more conciliatory stance on the Northern Ireland protocol. Sterling traded around 1.3320 against the dollar on Friday with the Euro just above 0.8500.

The monthly UK retail sales data was stronger than expected with a 1.4% increase, but markets expected a notably weaker figure for December with little market impact.


The Swiss National Bank held interest rates at -0.75% at the latest policy meeting. It reiterated that the franc is highly valued and that the bank remains willing to intervene as necessary to counter upward pressure on the franc. Bank Chair Jordan stated that the bank cares about the franc level a lot.

The franc posted net losses, but selling was limited by expectations that the central bank will target the real exchange rate rather than the nominal rate. With higher inflation rates elsewhere, this would imply Swiss currency gains. The Euro failed to hold above 1.0450 and retreated to 1.0420 with net dollar losses to 0.9180 on Friday.

Technical Levels



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