EurUsd The underlying theme of divergent monetary-policy expectations continued to be the dominant influence for most of Tuesday with a robust dollar and weak Euro. There were no significantly hawkish elements from comments by Bundesbank head Weidmann who limited his concerns to the risks of monetary policy being too lose for too long which helped maintain expectations of a further policy loosening by the ECB. In this context, there was further speculation that there would be a deposit rate cut of at least 0.10% at December’s council meeting. The dollar’s trade-weighted index pushed to seven-month highs while the Euro dipped to lows below 1.0700 early in US trading as yield support weakened further. There was little in the way of US economic data with a slightly weaker than expected reading of 96.1 for the NFIB smallbusiness confidence index, unchanged from the previous month. Two minor releases sparked some concern over the outlook with a further decline in import prices which will limit inflationary pressure while there was also a further increase in wholesale inventories which could have a negative growth impact. The Euro dipped to lows around 1.0675 before finding some relief, but it still registered net losses at the European close. There was a significant round of position adjustment in Asia on Wednesday which triggered sharp dollar losses as the Euro moved above 1.0750. There will be the threat of choppy trading with the US Veteran’s Day holiday on Wednesday.
Jpy The dollar was confined to relatively narrow ranges on Tuesday with support on dips towards 123.00 against the yen, but no fresh move above 123.50. US bond yields edged lower after a succession of daily moves higher which drew some momentum away from the US currency. US equity markets recovered early losses and prevented further selling pressure on the dollar. There was a weaker than expected monthly Tankan index with confidence at the lowest level since mid 2013 due to concerns over a slide in demand from China. A weaker than expected reading for Chinese industrial production maintained unease surrounding the outlook. Bank of Japan member Harada stated that there was no need for further monetary easing now while Governor Kuroda maintained his commitment to the current policy. The dollar overall dipped to lows just below 122.80 on wider position adjustment before finding some support.
Gbp Sterling maintained a firm tone against the Euro and gains accelerated following a break of the 0.7100 level with a peak just beyond 0.7070 while there were brief gains towards 1.5150 against the dollar. Prime Minister Cameron’s difficulties in securing a new deal on EU membership terms was illustrated quickly after he made his keynote speech on Tuesday. Calls for benefit limits to migrants were called problematic by EU officials while there was strong criticism from some elements within the Conservative party that the demands did not go far enough. The overall shortterm impact was limited, but there will be unease over the threat of building political pressures over the next few months. Bank of England MPC member Cunliffe stated that rate increases would be limited and gradual, in line with recent comments. The latest labour-market data on Wednesday is likely to have a greater impact on Sterling with weak data reinforcing the market’s more dovish expectations while robust data would force a re-think. The UK currency was able to move back above 1.5150 against the dollar on Wednesday as the dollar dipped lower.
Chf The Euro was trapped below 1.0800 against the franc on Tuesday, although there was support on approach to 1.0750 and it rallied from its worst level. The dollar attacked seven-month highs against the franc with a peak just below 1.0090 before a measured retreat on wider US losses during Wednesday’s Asian session. The Euro-zone political situation will continue to be monitored closely as any increase in tensions would also risk triggering fresh doubts whether there would be sufficient will to hold the Euro-zone together which could trigger fresh financial turbulence.