EUR/USD The Euro was able to find support on approach to the 1.0650 area on Thursday and pushed generally higher despite some dovish ECB rhetoric as the dollar corrected weaker as positions were unwound. ECB Chief Economist Praet continued to warn over downside risks with further concerns that inflation concerns could become un-anchored. The ECB minutes also maintained a generally downbeat outlook with comments that risks to missing the inflation target had increased. In this context, the bank would either have to acknowledge its inability to meet its mandate or take more aggressive action. Markets continued to assume that there would be further action at December’s meeting with a likely cut to the deposit rate and will be on alert for any significant comments from ECB head Draghi on Friday. US jobless claims data remained strong with a figure of 271,000 in the latest week from 276,000 previously which will maintain underlying confidence in the labour market. There was an improvement in the Philadelphia Fed index to 1.9 from 4.5 previously, although one notable feature was a decline in weekly hours which caused some concerns. Cleveland Fed President Mester stated that conditions for lift-off had been met with further improvement in the labour market and reasonable confidence that inflation would head towards the 2% area. Fellow member Lockhart stated that a rate rise would soon be appropriate and there were further strong expectations of a December hike. The dollar was still unable to regain momentum on expectations of monetary divergence and the Euro pushed to highs above 1.0750 before edging back towards 1.0700 on Friday with further underlying selling on rallies.
JPY The dollar was unable to make a fresh attack on resistance in the 123.50 area against the yen on Thursday and moved steadily lower under the weight of wider profit taking and dipped to lows near 122.60. There was a decline in benchmark 10-year US Treasury yields to just below 2.25% and the yield curve continued to flatten slightly which sapped dollar support to some extent while US equity indices were little changed. The overall capital-account trends still indicate strong outflows from Japan into overseas bonds, but the Japanese currency could still gain some support from concerns surrounding global growth with particular concerns over Asian trends. The dollar consolidated around 122.80 ahead of Japan’s Monday holiday with Japanese funds continuing to sell the yen on any strength.
GBP Headline UK retail sales data was weaker than expected with a 0.6% decline for October after a downwardly-revised 1.7% gain the previous month. The overall impact was limited as a significant pull-back had been expected and there was still a robust figure for annual growth at close to 4.0% with strong underlying spending. The latest CBI industrial orders data was marginally worse than expected at -11 for November from -18 previously while manufacturers expected output to fall for the first time in three years. The data will maintain concerns surrounding a lack of economic balance. With continuing export vulnerability, there will be further concerns over current-account vulnerability. There was further uncertainty surrounding domestic monetary policy with the Bank of England caught between global pressures for a loose policy and concerns that domestic demand is too strong. Sterling overall edged slightly weaker against the Euro with selling beyond 0.7000 while moving above 1.5300 against the dollar on US losses before edging lower again
CHF The Euro maintained a firm tone, but was unable to break above the 1.0900 level and dipped back towards 1.0870 with the dollar also correcting further to the 1.0130 area. Although there was a strong surplus for October, the main feature was a sharp drop in trade with imports falling close to 7% over the year while exports also declined. There were comments from National Bank member Maechler that the franc was still overvalued. Although there was nothing new in the rhetoric, the recent stream of comments on currency overvaluation has had some overall negative franc impact.
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