EurUsd Early in Thursday’s European session, there were comments from ECB President Draghi that the quantitative easing programme will be re-visited if downside risks materialize and he was concerned that signs of a turnaround in core inflation had weakened somewhat. He also stated that all instruments available within its mandate would be used to ensure that appropriate monetary accommodation is maintained. The Euro dipped sharply lower following the comments with a slide below 1.0700, but bears were unable to sustain a break below this level. US jobless claims were slightly higher than expected at an unchanged 276,000 in the latest week while there was a strong reading for the JOLTS job-openings data at 5.53mn from 5.38mn previously. There were no comments on monetary policy from Fed Chair Yellen which had a significant market impact as some participants had been hoping for some hawkish comments.
New York Governor Dudley stated that it was possible that conditions for interest-rate lift-off could be met so. Fed vice-chair Fischer stated that it may be appropriate to raise interest rates in December. He was, however, cautious over the impact of a strong US dollar and warned that there was still over a month until the rate meeting. A strong dollar will tend to slow the pace of tightening which will tend to cap the currency and comments were slightly less hawkish than expected. The Euro rallied sharply to highs just above 1.0800 and, after a sharp sell-off, there was a fresh move higher later in the New York session as short Euro positions were squeezed. There was also some evidence that the Euro gained ground when global risk appetite deteriorated. After a peak above 1.0820, the US currency dipped lower again in early Europe on Friday.
Jpy The dollar was unable to make any impression on resistance levels in Europe on Thursday and moved lower following a break of support in the 123.00 region with lows just below 122.70 in generally choppy trading conditions. US bond yields briefly moved higher, but were unable to sustain the move and there was also a significant retreat on Wall Street which curbed risk appetite and supported the yen during the New York session. The US currency dipped to lows at 122.50 during the early Asian session on fragile risk conditions before finding some support. Overall risk conditions are liable to remain more fragile in the short term which will offer yen protection, but overall yield trends will provide dollar support. US data will be watched closely on Friday with fresh information on retail sales and consumer confidence and weak data could trigger a significant re-assessment of yield December rate-hike prospects.
Gbp There was choppy Sterling trading on Thursday with significant swings in the dollar and Euro having a knock-on impact. The UK currency briefly moved to three-month highs through 0.7050 against the Euro before reversing course and moving back towards 0.7100 while there was also resistance on approach to 1.5250 against the dollar. Bank of England chief economist Haldane maintained his generally dovish stance suggesting that an increase in interest rates was a long way off based on current data. After pushing higher, wage growth had stalled while there was uncertainty surrounding the global economic outlook which prompted his continued caution over the outlook. Global growth trends will be watched closely given further signs manufacturing stresses. Any deterioration in risk appetite could also be an important negative factor for Sterling, but Euro yield trends provided support near 0.7100.
Chf The Euro dipped to test support towards 1.0750 against the franc on Thursday before rallying back to just above 1.0800 while the dollar tested support just below parity before closing just above this level. Potential defensive franc demand on a decline in US equity markets was offset by expectations of intervention to weaken the currency. ECB policies will remain an important focus given expectations of further significant monetary easing at December’s policy meeting with concerns that additional ECB easing measures could trigger an aggressive National Bank response.