EUR / USD
ECB council member Makouf stated that raising interest rates is absolutely necessary which had little overall impact on the Euro as tight ranges prevailed.
The New York Empire manufacturing index improved sharply to -1.5 for September from -31.1 previously and well above consensus forecasts of -13, although this still reflected net contraction for the month. There was also a sharp turnaround in the new orders and components figures, but unfilled orders declined slightly.
There was a net increase in employment for the month while there was a significant easing of cost pressure with prices received also increasing at a slower rate. Companies were slightly more optimistic over the outlook with inflation pressures expected to ease only slightly.
In contrast, the Philadelphia Fed manufacturing index dipped sharply to -9.9 for September from 6.2 in August and below consensus forecasts of 3.0. There was significant contraction in new and unfilled orders, but shipments remained in positive territory. Employment increased at a slower rate on the month while inflation data was mixed with an easing in cost pressures as the prices paid index retreated to the lowest level December 2020, but with a faster rate of increase in prices received.
Companies were slightly less pessimistic over the outlook with inflation pressures expected to remain strong.
The dollar edged lower after the data, although the overall reaction was muted with solid underling US dollar support. The Euro secured some respite towards the European close with the Euro around 1.0000 against the dollar. The Euro was still resilient on Friday, but retreated to around 0.9980 amid a strong dollar tone.
China’s offshore yuan rate dipped beyond the 7.00 level against the dollar for the first time since July 2020 which helped underpin wider dollar sentiment during the day.
US retail sales increased 0.3% for August after a revised 0.4% decline the previous month and slightly above consensus forecasts of a 0.2% gain while underling sales declined 0.3% on the month and below expectations of a 0.1% gain. There were reservations over underlying spending trends.
Initial jobless claims declined to 213,000 in the latest week from 218,000 previously and below forecasts of 226,000 while continuing claims were unchanged at 1.40mn.
Although there was a bid in Treasuries after the batch of US data, there was selling interest on rallies which maintained underlying support for the US dollar.
The dollar peaked at 143.80 against the yen before settling around 143.50 in choppy trading.
Chinese data releases were slightly stronger than expected with an annual increase of 4.2% for industrial production from 3.8% previously with 5.4% growth in retail sales. The data overall provided an element of relief. Japanese Finance Minister Suzuki stated that no options would be ruled out in taking action if the sharp yen weakening persisted. The dollar retreated to 142.85 before moving back above the 143.50 area as underlying dollar sentiment remained strong.
Sterling was unable to make headway on Thursday with the currency undermined by an underlying lack of confidence in the UK outlook. The latest Bank of England survey recorded an increase in 1-year inflation expectations to a record high of 4.9% from 4.6%, although the 2-year expectations index edged lower to 3.2% from 3.4%. Overall satisfaction in the bank’s control of inflation dipped to a record low. The data was compiled ahead of the government energy price cap announcement.
Chancellor Kwarteng stated that the emergency budget will be delivered on September 23rd which will be on the day following the Bank of England policy meeting with markets expecting a package of tax cuts. The latest estimates on government borrowing will be watched closely in the data.
Sterling was unable to make headway and dipped back below the 1.1500 level against the dollar with the Euro posting significant gains to 0.8715.
UK retail sales volumes declined 1.6% for August compared with expectations of a 0.5% decline, reinforcing near-term fears over the short-term outlook. Sterling remained on the defensive on Friday with no support from the data as it traded below 1.1450 against the dollar with the Euro near 19-month highs at 0.8730.
The Swiss franc maintained a strong tone on Thursday with further demand for the currency on its longer-term qualities and the National Bank determination to control inflation. The Euro declined to fresh 7-year lows around 0.9535 during the day. The dollar was unable to break the 0.9650 level and retreated to near 0.9600.
Markets expect that the National Bank will raise interest rates again at next week’s policy meeting which would reinforce support for the currency.
The Euro managed to recover to just above 0.9600 on Friday with the dollar around 0.9640.