EURUSD The Euro was confined to very narrow ranges during the European session on Thursday with some support on approach to the 1.0600 area. Headline Euro-zone M3 money supply growth was slightly stronger than expected at 5.3% in the year to October at 5.3% from 4.9% previously with growth in the narrower M1 remaining strong at 11.8%. Data on loans to the private sector was still relatively weak with annual growth at 1.2%, although this was the strongest level for four years. Despite signs of improvement, there were still strong expectations that the ECB would push ahead with a further raft of measures at next week’s policy meeting. There was also further speculation that the bank could push ahead with a larger than expected deposit-rate cut and look to surprise markets. Overnight Eonia rates dipped to fresh lows below -0.28% with expectations that the deposit rate could be cut to at least -0.35%. Trading volumes were very thin during the day amid the US Thanksgiving holiday and a lack of fresh incentives. There were no further significant dollar moves as the US trade-weighted index held just below the 100.00 level. Although there was some pressure for a corrective Euro rally and it made marginal gains on Friday as risk conditions were generally weaker, it was difficult to generate any overall buying momentum due to fears of more aggressive ECB action next week.
JPY The dollar struggled to make any significant progress on Thursday and held below 122.80 as liquidity was very low while there was no lead from the US bond markets. There was a slightly higher than expected reading for Japanese core inflation in the latest data and unemployment dipped significantly to 3.1% from 3.4%. In contrast, there was a further annual decline in household spending which will maintain underlying concerns over spending trends. Japanese Prime Minister Abe ordered an extra budget for the current fiscal year of up to JPY3.5trn which would provide additional support to pensioners. Additional fiscal easing could lessen pressure for further Bank of Japan monetary and offer some yen support. Latest capital-account data recorded further net outflows from Japan into overseas bonds, although the pace did slow significantly from the previous week. There will be expectations of sustained capital outflows unless risk conditions deteriorate sharply. After an initially lacklustre Asian session, the dollar dipped lower to test support below 122.50 against the yen as a downward pressure on regional equity markets, especially in China triggered defensive yen support.
GBP Sterling initially found support on dips towards 1.5050 against the dollar and also strengthened slightly from the 0.7045 area against the Euro. There was still some positive sentiment surrounding Wednesday’s Autumn Statement with hopes that growth would be stronger than expected. The underlying fiscal position will, however, be even more vulnerable if there is deterioration in prospects. There will also be further implicit pressure on the Bank of England to maintain a very loose monetary policy which will tend to undermine Sterling. There was also still a gradual retreat in short-term Sterling interest rates which suggested that there was still an on-going adjustment in Bank of England rate expectations. Revised GDP data could have a short-term market impact on Friday with the components of growth scrutinised closely. There was a marginal dip in the latest consumer confidence data and Sterling edged below 1.5100 against the dollar on Friday with some expectations of month-end selling.
CHF The Euro was able to make some headway against the franc in European trading on Thursday with a high close to 1.0880 in thin conditions before a correction back towards the 1.0850 area. The dollar peaked just above 1.0250 before edging lower once again as narrow ranges dominated. European equity markets were generally robust which helped underpin risk appetite and curb defensive demand for the Swiss currency, although the overall impact was limited with Asian markets weaker. Markets will also focus on next week’s ECB policy meeting.